Competitive analysis of the South African soybean industry

Abstract

Soybean is amongst the most crucial field crops in South Africa. Although the local soybean industry is still in its infancy, it is an important growing sector of South Africa’s agricultural economy. The soybean industry’s contribution in terms of gross value of production, at over R5 billion (in 2014/15) out of R225 billion (in 2014/15) for the entire agriculture industry, may seem insignificant but it is very important. This is not only in terms of the industry’s contribution towards the gross value of the entire production in agriculture, but also in terms of its contribution towards value addition by soybean products. The key aspect of the importance of soybean relates to the fact that the majority of soybeans are consumed in the processed/value-added form, and very little is consumed in primary form. There are various sectors of the economy, such as agricultural inputs (paints, lubricants, animal feedstuffs, etc.), that benefit directly from the supply of the processed soybeans. The increasing importance of soybeans in the domestic market is illustrated by the hectares (ha) set aside for the production of the crop over a period of time. Despite the steady increase in the production of soybeans in recent years, the South African soybean industry has not been able to meet the local soybean demand from the animal feed manufacturing, industrial and human consumption sectors. By analysing the South African soybean industry, key weaknesses and threats in the value chain can be identified. Addressing these will further strengthen the competitiveness of the local soybean value chain. This study gives an overview of the soybean industry, at both global and domestic levels. The overview of the industry is followed by a competitive advantage analysis of the South African, together with the Argentine and Brazilian, soybean value chains. The Relative Revealed Comparative Trade Advantage (RTA) index is applied to calculate the competitive advantages of the domestic soybean industry, together with those of its southern hemisphere competitors. The results reveal that the South African soybean in the primary form, has a marginal competitive advantage. Furthermore, the value-added soybean products display a competitive disadvantage. At the same time, both Argentinian and Brazilian soybean value chains have a competitive advantage. The conclusion that the domestic soybean industry is slightly competitive only in the primary soybean sector, while both the Argentina and Brazil soybean industries are competitive through the entire value chain, was calculated from World Integrated Trade Solutions (WITS) trade data. The elements behind the competitiveness of the soybean industry were identified. These elements were identified to explain the underlying reasons behind the competitive disadvantage experienced by the South African soybean products. It was established in the analysis that utilisation rates have remained below average as a result of the technical challenges in a number of newly established factories, as well as a shortage in supply of soybeans by the local industry. All that is currently lacking is sufficient production to match the processing capacity. Although soybean production has grown tremendously over a period of time, it will take a while to match the crushing capacity.