Mozambique Agribusiness Report Q4 2011

Over the next few years, we envisage strong production growth for Mozambiques sugar industry and poultry meat sectors; both sectors are benefiting from new investments and rising consumption demand. In the five years to 2015, we also envisage a steady expansion in output for Mozambiques two leading grain crops, corn and sorghum. These and other agribusiness subsectors are currently benefitting from increased investment by both the government and private companies. One development which is expected to help drive production growth in the sugar and corn sectors is a growing commitment by the Mozambican government to developing biofuels. Meanwhile, the main downside risks to our grain production forecasts include the subsectors continued vulnerability to variable rainfall and associated problems such as drought and flooding. With regard to poultry, the greatest downside risks for production include rising feed costs and disease. Our five-year forecasts also envisage positive demand growth for the consumption of all agribusiness produce; growth will be underpinned by rising incomes and by population expansion.

Key Forecasts:

.. Corn Consumption Growth to 2015: 27% to 2.4mn tonnes. Strong consumption 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.

.. Corn Production Growth to 2014/15: 9% to 2.11mn tonnes. Weaker production growth reflects the influence of base effects and a 2.8% contraction in output in 2010/11. The fall in output in 2010/11 was due to excessively dry weather followed by rains and floods in southern and central Mozambique. Despite the weaker forecast, corn will remain Mozambiques most widely produced and consumed grain.

.. Sorghum Production Growth to 2014/15: 9% to 413,000 tonnes. Unlike corn production, unfavourable weather conditions did not seriously affect sorghum output. However, although 2010/11 saw positive production for sorghum, we expect corn to outperform Mozambiques second most important grain through to 2014/15.

.. Sugar Production Growth to 2014/15: 65% to 432,000 tonnes. New data from Mozambiques sugar producers and the USDA suggests that the countrys sugar industry was on track to produce around 292,000 tonnes of centrifugal sugar in the 2010/11 agricultural year (ending December 2011); this was up by an impressive 11.6% compared to the previous year. As one of Mozambiques key cash crops, long-term production growth will reflect an increase in exportdriven demand and the opening-up of new markets; sugar production is also expected to benefit from investment in biofuels.

.. Sugar Consumption Growth to 2015: 15% to 223,000 tonnes. We have downwardly revised our demand forecast to reflect a more moderate rate of consumption growth through to 2015. Although rising demand for sugar will be driven by rising incomes and by an expanding population, sugar will nevertheless remain a luxury food for many Mozambicans.

.. Poultry Production Growth to 2014/15: 23% to 52,200 tonnes. We maintain our view that poultry production increased by a modest 0.2% in 2010/11 to 42,700 tonnes. However, stronger production growth from 2011/12 will be fuelled by rising domestic demand and ongoing investments in improved production techniques. However, poultry consumption will increase by 32% over the same period, reflecting improved living standards and an expanding population.

Key Macroeconomic Forecasts:

.. Mozambique Real GDP Growth 2012: 7.5% (unchanged on the previous year); predicted to average 7.6% in the five years to 2015. GDP per capita expected to rise to US$1,910 in 2020 (from an estimated US$523 in 2011. .. Mozambique Consumer Price Inflation 2012: 8.4%, down from an average of 11.6% in 2011; 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

Mozambiques 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 addition, like elsewhere in Africa, Mozambique has begun exploring land leasing opportunities. In August 2011, Brazilian newspaper Folha de Sao Paulo reported that Mozambique was preparing to provide large tracts of land at a symbolic price to Brazilian farmers to produce corn, soy and cotton. It is understood that Brazilian farmers will be provided with 6mn hectares (60,000 square kilometres) in four provinces of northern Mozambique to be farmed under concession for a period of 50 years, renewable for a further 50 years against payment of an annual rent of MZN37.50 (US$1.37) per hectare.

According to the São Paulo-based newspaper, a delegation of 40 Brazilian farmers was due to travel to Mozambique in September to analyse the land available in Niassa, Cabo Delgado, Nampula and Zambézia provinces. As global food security becomes increasingly pertinent over the coming years, Mozambiques natural endowment of underutilised fertile land will become a much more attractive investment proposition. According to the Mozambican government, the country has 36mn hectares of arable land. Only 5mn of these are currently under cultivation, with the majority by small-scale subsistence farmers. Furthermore, Mozambique has some of the lowest cereal yields in southern Africa. We expect higher food prices, together with rising domestic demand, to result in new efforts to bring additional land under cultivation. Rising domestic demand will be driven by a young, growing, increasingly wealthy population which will demand ever more goods and services.

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. In order to improve the productivity of existing land and bring new land under cultivation, Mozambiques agribusiness companies will need to place an increasing emphasis on new irrigation techniques. Investments in irrigation are expected to result in strong productivity growth for a number of Mozambiques agribusiness sectors over the next few years.

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