Mozambique Agribusiness Report Q3 2012

BMI View: Increased cultivation, an improving macroeconomic outlook, access to export markets and investments into enhancing the productivity of domestic mills are the key factors behind our highly optimistic outlook for sugar production in Mozambique. While these factors will also have an effect on production and consumption growth in the livestock and grains segments, we highlight that growth in these sectors remains highly vulnerable to external factors. Weather-related hazards such as flooding and drought pose serious downside risks to grains production, and the recurring problem of pests and diseases threatens the livestock sector. Nevertheless, we believe that government support and incentives could be the biggest encouragement for growth in these sectors.

Key Forecasts

Corn production growth to 2016: 14.8% to 2.4mn tonnes. Strong corn output growth will occur on the back of a rapidly expanding population as well as a steady increase in the use of corn as a feed for livestock and poultry.

Sugar production growth to 2015/16: 89.6% to 534,000 tonnes. As one of Mozambique's key cash crops, long-term production growth will reflect an increase in export-driven demand and the opening up of new markets; sugar production is also expected to benefit from investment in biofuels.

Poultry production growth to 2015/16: 28.3% to 54,800 tonnes. Although we expect steady production growth, Mozambique is expected to develop a growing reliance on imported poultry meat. This reflects a widening shortfall in the supply of edible poultry meat relative to rising consumption demand.

Real GDP growth 2012: 7.4% (down slightly from 7.5% in 2011); predicted to average 7.5% in the five years to 2016.

Consumer price inflation 2012: 6.8% (down from an average of 6.1% in 2011; predicted to average 7.7% to 2016). As an importer of significant quantities of wheat, sugar, milk and rice, Mozambique is vulnerable to rising international commodity prices. High prices for these staples inevitably feed inflation, sapping consumer purchasing power.

Key Views And Developments Mozambique's agribusiness will continue to benefit from a relatively new wave of 'south-south' investment, which has seen a number of rapidly growing emerging markets – particularly from Asia but also from countries such as Brazil – invest in industries with strong growth potential. In June 2012, Armando Ussivane, the chairperson of the board overseeing the state-owned Lower Limpopo Irrigation Scheme, revealed that its management is looking to partner with China with a view towards boosting productivity within areas covering 12,000 hectares (ha). The initiative looks to increase productivity in wheat and rice cultivation from the current 3 tonnes/ha to about 10 tonnes/ha.

Numerous risks and challenges will remain for the foreseeable future, not least in the form of variable weather conditions. Mozambique ranks among the African countries most exposed to risks from multiple weather-related hazards such as floods and droughts. Corn production during 2011/12 was weakened by below average rainfall in the interior parts of Inhambane, Gaza, Tete and Sofala provinces. Meanwhile, cropland in the southern and central provinces was affected by flooding as a result of the four consecutive tropical cyclones (Chandra, Dando, Funso and Irina) in Q112.

In order to improve the productivity of existing land and bring new land under cultivation, Mozambique's agribusiness companies will need to place an increasing emphasis on new irrigation techniques.

Investment in irrigation is expected to result in strong productivity growth for a number of Mozambique's agribusiness sectors over the next few years.

Investment in Mozambique's sugar sector will remain strong in the foreseeable future. Local news source Noticias has reported that investors from South Africa are examining the possibility of establishing sugar plantations and setting up a sugar mill in the Mopeia district of Mozambique. The investors are looking to spend up to US$1mn in the first phase of the project, which could get under way as early as H212. In total, there are plans for plantation of nearly 30,000ha and production of US$400,000 worth of sugar for the domestic and export markets.

Meanwhile, Mozbife Limitada, the Mozambique-based wholly owned subsidiary of Agriterra, has been ramping up its expansion activity in the country in line with its broader strategy of becoming a leading beef producer in Southern Africa. In May 2012, the company announced its plan to expand its total herd size to more than 4,000 head. The expansion marks a significant step towards the subsidiary's target of expanding its herd size to 10,000 head by 2015.