20 March 2020 – The coronavirus has precipitated an unprecedented economic crisis.
The position of China as the second largest economy in the world and a major exporter has led to supply and demand shocks for the majority of economies around the globe.
China is a large importer of agricultural products and if the outbreak persists, this could have a negative impact on countries exporting their products. Indications are that the government has not imposed any additional sanitary or phytosanitary requirements on market access for primary sector products, exports and imports. Standing regulatory conditions are not yet affected.
However, due to measures to control the outbreak, some areas are in lockdown and it might become challenging to export to China. Exporters have to wait for the return of containers from China, some of which are currently stuck at depots.
South Africa exports a number of agricultural products to China. I will look at the impact of coronavirus on mohair exports to China.
Worldwide, South Africa is ranked as the top mohair producer with a market share of more than 50percent, followed by Lesotho, US and Argentina.
In South Africa mohair is produced mainly in the Eastern and Western Cape provinces, with about 2.23 million kilos of mohair estimated to be produced annually by 1000 farmers, whereof 800 are regarded as commercial producers based mainly in Eastern Cape. The industry, which employs around 30000 people, is estimated at R1.5billion annually.
Approximately 5percent of mohair is sold locally, while 95percent is exported.
It is projected that in the short term demand for non-food products such as cotton could be negatively affected. One could also expect that demand for mohair could be affected as it is linked to textiles and manufacturing.
The Absa Agri Trend report of February 19 pointed at two aspects concerning the outbreak of coronavirus and fibre market trends in China:
First, the Chinese market is heavily dependent on the textiles and fibre industry. If the travel restrictions, lockdown and curfews were to persist, impacting sales of wool and cotton, the Chinese economy could be severely impacted. That is why for now Chinese wool buying has still remained strong.
Second, manufacturing companies in China have closed their doors to prevent the spread of the virus, causing a build-up of cotton inventories.
Similar trends could also be expected for mohair, and there is already a build-up of mohair inventories at South African ports.
Given these trends, the question becomes what are the implications of the outbreak on South African mohair exports?
Two scenarios are projected:
Despite the outbreak, China’s demand for South African mohair remains consistent and is not abated, therefore no impact is expected. If the outbreak persists, China’s demand for South African mohair is likely to decline due to continued closure of manufacturing industries. In that case South Africa would have to look for new markets or look at possibilities of expanding supply to the existing markets.
Failure to secure alternative markets could result in loss of income by all players along the value chain.
In addition, an exposé of perceived animal cruelty practices at some of the South African mohair farms resulted in about 300 high-end fashion houses, about 60percent, banning mohair products. Source (Business Report)