Boston, MA -- (SBWIRE) -- 12/24/2013 -- We hold a positive view on the South African agricultural sector and see particular growth potential in the grain and livestock sectors. Both sectors' growth will be boosted by regional export demand. The sugar sector also presents interesting growth opportunities, mainly thanks to renewed investment and improved technologies. Overall, the country's grain and livestock producers have been hit by recent hikes in grain prices and subdued corn supply on the domestic market. Margins have plummeted, and foreign competition for exports has made it even more difficult for producers to stay afloat. We believe the country's main companies, AFGRI, Rainbow Chicken and Astral Foods, can only see profitability bounce from current subdued levels.

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Key Forecasts

- Sugar production growth to 2016/17: 15.5% to 2.2mn tonnes. This is based on our view that, over the long term, macroeconomic fundamentals, together with the increasing use of sugar for biofuels, will have a positive impact on sugar production levels.
- Poultry consumption growth to 2017: 23.8% to 2.1mn tonnes. As more South African consumers move towards diets containing higher levels of protein, poultry (predominantly chicken but also turkey and duck) is increasingly being viewed as a convenient, healthy and affordable source of nutrition.
- Corn production growth to 2016/17: 16.1% to 14.4mn tonnes. This relatively high growth rate reflects the influence of base effects. Growth will be supported by an improved macroeconomic outlook and the introduction of new corn varieties that generate higher crop yields.
- Real GDP growth: 2.2% in 2013, down from 2.5% in 2012; predicted to average 2.8% over the five years to 2017. GDP per capita is expected to rise to US$10,895 in 2017 (from an estimated US$7,339 in 2012).
- Unemployment: 25.0% in 2013, from 26.0% in 2012, then to 22.0% by 2017.
- Consumer price inflation: 6.0% in 2013, up from an average of 5.7% in 2012.
- BMI universe agribusiness market value: 6.4% year-on-year (y-o-y) decrease to US$9.4bn in 2012/13; growth forecast to average 2.6% annually between 2011/12 and 2016/17.

Industry Developments

We have revised up our forecast for 2013/14 South African sugar production to 2.3mn tonnes (from 2.1mn tonnes previously) owing to favourable weather conditions and strong yields and plantings. This rise in production will increase South Africa's production surplus from 142,900 tonnes in 2012/13 to 405,800 tonnes in 2013/14, boosting the country's export potential. The country's largest sugar producers, Illovo Group and Tongaat Hulett, reported strong export volume growth in Zimbabwe and Mozambique, even though values were affected by lower sugar prices and unfavourable exchange rates.

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