Johannesburg – The global financial crisis has sped up the sea change in international trade.
Amid the growing urgency for ethical and green compliance and fierce competition from other southern hemisphere countries, SA exporters also have to cope with an implosion in its traditional markets, a strong rand and passive aggressive protectionism.
It is quickly becoming clear that there are a number of new realities for local exporters:
1. Higher non-tariff barriers
As European economies continue to flounder, the European Union is apparently adopting stricter rules on imported products to keep exporters out.
Sandra Baetsen, project manager with the Fresh Produce Exporters Forum, says the EU is constantly raising the game for SA fruit in an effort to protect its own market.
These non-tariff barriers, like minimum specification and residue levels on fruit, are getting stricter every year, agrees Jacques du Preez of Hortgro, the operational industry services arm of the Deciduous Fruit Producers’ Trust.
Other non-tariff cost shocks include a decision by the new UK coalition government to replace an existing air passenger duty with a "per-plane" tax - which will hurt exporters.
2. Electronic data interchange urgency
Exporters (and government) need to hike budgets for electronic data interchange (EDI) – the transfer of electronic documents from the trading partner's computer system to another.
EDI between exporters and government agencies for the phytosanitary (regulations to prevent the introduction or spread of plant pests or pathogens) release of goods has not been established yet and is currently a long, tedious paper trail.
A recent study done by the Commonwealth secretariat showed that SA's competitors in other southern hemisphere countries have invested much more in EDI in the supply chain, says Baetsen. "Their documents are being transferred electronically while we have a lot of manual systems in place still, which make our lead times longer."
The study also underlined other problems the local logistics export chain face, particularly that SA's ports are much more expensive than anywhere else – while local port efficiency lags behind.
"We also one of the few countries where ports are not privatised. On top of that, our shipping rates to Europe are much higher in comparison to those of our South American colleagues. An expensive supply chain doesn't help us either once prices are under pressure," adds Baetsen.
3. Credit conservatism
According to the research by the US International Trade Commission, the global financial crisis led to a shift in trade financing.
"Because of heightened uncertainty and increased counterparty risk, exporters shifted away from risky open accounts towards lower-risk bank-intermediated financing and export credit insurance," the commission reported last year.
Before the crisis in 2008, only 9% of world trade was insured and up to 80% of global trade deals were conducted through open accounts (the importer pays for goods after they are delivered). However, there are indications that more exporters are requiring bank financing from importers which usually involves letters of credit (whereby the bank assumes the non-payment risk) in an effort to reduce risk.
After the world economic crisis security of payment and availability of credit on the importer/buyer side was an issue for local exporters, confirms Du Preez.
"This however seem to have been resolved but the key to being a successful exporter remains long term relationships with buyers."
4. Strong rand
The local currency is one of the biggest challenges local exporters face.
A strong rand is making SA's products much more expensive abroad and few are expecting relief in this regard as the euro – currently trading at four-year lows against the dollar – continues to crumble. This is of particularly concern, given that 30% of all SA exports are Europe-bound.
"Exporters have to remain flexible that when the euro weakens too much, they are able to shift their product to for instance, a dollar market (which is not always easy with a perishable product and the fact that oversupply can lead to poor returns as well)," says Baetsen.
Sybil Rhomberg, managing director of the SA Capital Equipment Export Council, believes that the artificial weakening of the rand by SA authorities should not be encouraged given SA's large international debt burden.
"However, in order to gain international competitiveness I believe that the lowering of input costs and the increase in research and development is the only sustainable route to take. South Africa must increase its research and development spend otherwise it will become a net importer in the future."
5. More regulations, same returns
The export arena is becoming more complex with exporters having to comply with the different rules issued by different retailers, says Baetsen.
"Exporters have to adhere to different supermarkets' specific ethical trade standards and audits, be able to prove traceability of fruit at all times, make sure their carbon footprint is in line with the retailers strategy and make sure they deliver the right fruit in terms of colour, size and taste at the right time."
Instead of getting a financial incentive for all of the above, these rules are the norm now, so the returns for all the efforts are the same, says Baetsen.
"This, as you can imagine, makes it very hard for new businesses or emerging players to enter the export arena."
6. The search for new markets
Due to the economic pressure in SA's traditional markets (UK, Japan and Europe) many exporters have started venturing into other markets like the Middle East, Far East, Russia and Africa.
"From industry's side it is definitely seen as a way of diversifying our dependence on Europe and a way to relieve the pressure in those markets without losing market share," says Du Preez.
The Middle East is an important new destination, with exports of some SA fruits almost tripling in the past three years. The Middle East is now the second biggest market for SA nectarines, for example.
There have also been ongoing efforts to enter China. For fruit exporters, a key breakthrough will be an agreement on a phytosanitary protocol for the importation of South African apples – which may open the doors for other fruit.
The Indian market also holds huge promise for SA food exporters – as it is close to SA, but also in thenorthern hemisphere (which means harvesting seasons differ and imports don't compete with local produce).
"There the restriction is not the phyto issues, but very high tariffs which hampers market development," according to Du Preez. Indonesia, Thailand, Korea, Vietnam, Taiwan are all countries that have potential.
To capitalise on these markets, the old tried and tested method is still the best, advises Rhomberg.
"Undertake focused target market selection utilising realistic acknowledgement of real competitive advantage, find a good agent, support him well, ensure that you visit the country at least twice a year to visit his 'A' type customers, keep local stock either in semi knocked down or completely knocked down state to add some value in the country, advertise in the target market and within about five years you should be making real money from that market."
7. SA's trade agreement impediment
Exporting countries throughout the world are undertaking bilateral relationships in order to leverage better access for their products or services in new markets, says Rhomberg.
"South Africa is extremely tardy in this respect with only three bi-lateral agreements in place. Chile has 24. South Africa is engaged in a lot of negotiation for future agreements with for instance Brazil and India but nothing nearing a positive conclusion."
Rhomberg also believes government has to step up the Competitive Supplier Development Programme (localise state procurement) in order to ensure the increase in economies-of-scale for the local manufacturing industry since this will also increase global competitiveness - apart from creating jobs.
8. Intellectual property 'partners'
Much has been said about the threat of intellectual property erosion in countries – particularly in the Far East - which have little (or now) protection of patents and may rip off exported products without fear of prosecution.
"We have found the best manner of protecting intellectual property is to find a strong Chinese joint venture partner and undertake some manufacture in China," says Rhomberg. In order to protect the business the Chinese partner will aggressively defend the business against the theft of intellectual property on all fronts including the local market branding.
9. Boosting the SA brand
SA exporters can’t afford to focus on their own brands only – but need to actively promote the “South Africa” brand as it is intrinsically linked to their own brands.
"It is essential for SA to differentiate our products from competitors [particularly Chile, Brazil, Argentina and New Zealand] and to establish a n image and link the SA brand to our fruit in order to increase sale, win market share and increase price, says Du Preez.
Unfortunately, South Africa has to rebuild its reputation as a reliable source of supplying high quality fruit on time after the Transnet strike, he adds.
10. Setting up shop outside SA
"It is senseless to constrain a business to one country where it becomes a victim to the peaks and troughs of its market," says Rhomberg. "Use South Africa as a base but spread your business according to the demands for competitiveness in those markets."
This could include considering semi knock-down or complete knock-down manufacture in the target country - which will reduce the cost of stock, add local value and patriotism for the product or brand.
"Also consider the bi-lateral agreements in place from that country which could enhance your competitiveness in those extra markets that would otherwise have been excluded to your company trading directly from South Africa."
- Fin24.com