AGRICULTUREThe
AGRICULTUREThe agricultural sectorcan overcome the impactof a potential AGOA exitBy Meluleki Nzimande and Megan Jarvis, partners at Webber Wentzel.The hostile disposition of the United States PresidentDonald Trump towards South Africa raises seriousconcerns about the possible exclusion of South Africaas a beneficiary of the African Growth and OpportunityAct (AGOA) which is set for renewal in 2025. With South Africaconsistently ranking as the top AGOA user, as well as the numberone African agricultural exporter under AGOA, we look at thepossible ramifications for agriculture.A law implemented in 2000 by the US, AGOA establishes aunilateral-trade-preference programme, allowing certain exportsfrom South Africa and many other eligible Sub-Saharan Africancountries to enter the US market duty-free.Under AGOA, two-thirds of South Africa’s agricultural exportsto the US benefit from tariff-free treatment. Since its inception,South Africa has exported over -billion (R125-billion)worth of agricultural products to the US. This is according to aNovember 2023 United States Department of Agriculture (USDA)Foreign Agricultural Service report, entitled “AGOA SupportsSouth African Agriculture”.Impact of a potential AGOA lossA November 2023 report published by the Brookings Institution,a non-profit organisation based in the US, detailed the potentialimpact of an AGOA exit for South Africa. The report found thatthe impact of a loss of preferential market access under AGOA onexports and gross domestic product (GDP) would be small.Their model estimated that, at worst, South Africa’s totalexports to the US would fall by about 2.7%, with the biggestlosses felt by the food and beverages, the transport equipmentand the fruit and vegetable sectors. Yet, in total, a loss of AGOAbenefits would lead to a GDP decline of just 0.06%, the paperargued. Agriculture would constitute just a percentage of that.Nonetheless, while the impact as a percentage of total GDPmight not be excruciatingly large, it would affect provinceswhere agricultural exports are a prominent source of income.The Western Cape is by far the province that benefits mostfrom AGOA trade, according to figures from the NationalAgricultural Marketing Council (NAMC). Between 2018 and 2022,the Western Cape accounted for 49% of South Africa’s overallagricultural exports to the US in terms of value.Mpumalanga’s agricultural sector is AGOA’s second-largestbeneficiary, accounting for at least 15% of South Africa’s totalagricultural exports in 2022. Gauteng,Eastern Cape and KwaZulu-Natal roundoff the five provinces that most benefitfrom AGOA in terms of agriculture.Regardless, our overriding message is to keep calm and keepmoving in the face of a potential threat to AGOA. We are in thesame position as anybody else is in the world when it comesto uncertainty around US economic relations as demonstratedby the “liberation day” tariffs announced by President Trump.Should South Africa lose access to AGOA benefits, doing proactivegroundwork should soften the blow.Potential scenariosWe see three potential scenarios with regards to the future ofAGOA. The viability of these scenarios is seriously challenged bythe imposition of a 30% “liberation day” tariffs against all SouthAfrican imports into the US effective 5 April 2025 and the 25%imposed earlier in respect of automotive vehicles.1. South Africa loses the preferential treatment that it currentlyqualifies for under AGOA, and its goods are traded with theUS in the same way as those of any other country outsideof the AGOA agreement. If our goods are then not ascompetitive as those of other suppliers to the US market,then we can expect a decline in the volume of our exportsto the US. If they are, it’s business as usual bar the impact ofliberation day tariffs. In practice, the South African producerand US importer may bear a share of the duties’ costs, inwhich case the US consumer will remain in a net-neutralposition. Alternatively, the consumer could shoulder aportion too, splitting the burden three ways.2. The US importer and the South African supplier absorb theduty, and the US consumer continues to benefit from goodprices. Both the South African supplier and the US importerwill be less profitable, but trade will continue bar the impactof liberation day tariffs. Or the South African producermay choose to shoulder the entire burden in exchange forremaining competitive in the US market, yet at a cost.3. The full duty and its inflationary effect is passed onto the USconsumer. Trade continues and the South African producerand US importer remain profitable. Yet they will lose a shareof the US market. With the imposition of liberation daytariffs, this option seems unviable.42 | www.opportunityonline.co.za
AGRICULTUREThe Western Cape accountsfor nearly half of South Africa’sagricultural exports to the US.Be preparedTo determine the best option, modelling these different scenariosis advisable. South African suppliers should examine theirsectors, understand their tariff risks and talk to their importersto negotiate deals. Regardless of which scenario plays out, theagricultural sector should diversify and explore other markets – itis always beneficial to grow the market for our goods.The basket of goods we supply to the US is broad, made upof raw materials, semi-processed goods and processed goods –finished products. Therefore, on value-added goods, this meansthere is a positive economic impact on South Africa, which is notthe case when trading with China to whom we supply primarilyraw materials.Citrus and fruit, vines, nuts, avocados and beef are amongSouth Africa’s main agricultural exports to the US. Thoseworking with this produce should therefore know which tariffsspecifically apply to them. Liaising with importers is advisable toensure supply-chain agreements are in place and that they haveappropriate contractual arrangements giving them rights to exitdepending on which circumstances unfold.Exploring other marketsWith preferential market access in the US ending, South Africansuppliers must examine opportunities in similar markets aroundthe world – namely, Canada, the European Union (EU) and theUnited Kingdom (UK). South Africa has economic partnershipagreements with the EU as well as with the UK, both of whichprovide a large range of our goods preferential market access.On our continent, most of our agricultural and other exportsare value-added goods. It is therefore advisable to increase ourtrade with other African countries to maximise the net-positiveeconomic impact.Here, we can leverage regional agreements such as the SADCProtocol on Trade as well as the Agreement Establishing theAfrican Continental Free Trade Area (AfCFTA), enabling us to tradeon preferential terms with other African states.With Trump destined to ease sanctions on Russia, it could alsopotentially become a workable market for the export of SouthAfrican agricultural products. Should the EU follow the US (whichseems unlikely in the short term), trade with Russia will be open.Additionally, with Johannesburg as host of G20 Summit, wecould leverage the Business 20 (B20), the official G20 dialogueforum with the global business community, potentially accessingnew markets.The immediate opportunity, whether AGOA stays or goes, is tostart building new relationships while still strengthening existingrelationships with the US. Forging ties with the Canadian andother markets as they navigate trade wars with the US may alsobe a wise strategy.Ultimately, agricultural exporters must safeguard theirpositions. Build relationships with their importers and deal withthe relevant organisational bodies for products in the US andSouth Africa to take a coordinated approach, so that there areviable alternate scenarios. Diversification and competitiveness arealways a vital enabling mechanism.ABOUT WEBBER WENTZELFounded in 1868, Webber Wentzel is a leading full-service lawfirm providing clients with innovative solutions to their mostcomplex legal and tax issues across Sub-Saharan Africa. Withover 450 lawyers, its multi-disciplinary expertise is consistentlyranked top-tier in leading directories and awards, both in SouthAfrica and on the African continent. The collaborative alliancewith Linklaters and its deep relationships with outstanding lawfirms across Africa provide clients with market-leading supportwherever they do business.Meluleki Nzimande.Megan Jarvis.PHOTO: Michael Coghlan/Wikimedia Commonswww.opportunityonline.co.za | 43
