Hit by tumultuous market conditions in 2015, macadamia nut farmers are expected to see record prices for the 2016 season, owing to a combination of the drought in South Africa and Malawi, consistent production levels elsewhere in the world, increased demand from the US and China, and the weak rand.
 
“The drought will cause the South African crop to be 10% lower than last year and 20% lower than the 2016 forecast for the industry,” said South African macadamia nut processor and marketer Green Farms Nut Company (GFNC) head of sales for Europe, the Middle East and Africa Alex Whyte this month.

Speaking at the Valley Macadamias Group’s farmer’s day in Kiepersol, Mpumalanga, earlier this year, chairperson Alan Sutton noted that, while the macadamia industry usually saw a 12% to 15% increase in volume each year, owing to new trees coming into production, the drought would mostly eliminate any increase. “But this might not be a bad thing as a reduced volume could mean better prices as the supply and demand curve remains favourable for farmers. Overall we are expecting a good season with no hiccups in the marketplace as seen last year.”

“Because South Africa is the world’s largest producer of macadamias, our reduced production will cause a global shortage even though production in the rest of the world will be at normal levels,” Whyte added.

He stated that, overall, the prospects for the 2016 season were so positive that GFNC expected record prices.

Also speaking at the Valley Macadamias Group’s farmer’s day, economist Mike Schussler said now was the time to be in the export industry. “The rand will continue its decline as a result of political instability. We can expect the currency to sink to R18/$1 during the next two years and after that to R20/$1. It could even reach R25/$1 by 2020.”
 
Whyte noted that demand from China had increased significantly over the past few years.

Sutton stated that the recovery of the Chinese market and strong demand from the US could result in a slight increase in the dollar price paid for macadamias. “Coupled with the weakening rand and a smaller supply to the market owing to the drought, the market is set to hold with minimal disruptions this year.”

But Sutton warned that, while prices for the nuts would hold, the stricter quality requirement from China could see many farmers fall by the wayside.

Whyte highlighted that China was currently South Africa’s biggest market but was insisting on higher quality than before.

“Specifically, they are looking for larger in-shell with low levels of unsound kernel. While this limits our options for exporting to that market, it does mean that if we offer the right quality, we can set the price,” he explained.
 
In many cases, the drought would cause the kernels to be smaller than that wanted by China. However, Whyte expected demand in the rest of the world for macadamia pieces to remain constant, enabling farmers to get good prices for the smaller kernels when cracked.

“One thing became very clear in the marketplace last year and that is that consumers will no longer accept sub grade nuts. New regulations are also coming into effect this year that will severely impact on the type of nuts that are exported. This means farmers will need to be more thorough during their on-farm grading process so that they don’t get penalised at the factory,” Sutton warned.

Schussler advised farmers to increase their profits . . .  “don’t flash your cash and factor in expropriation into your plan because it could happen”.

 “What [the industry needs] to do now, while things are looking good, is plan for a few years down the line, when the drought has broken and we could have a sudden oversupply,” Whyte added.

GFNC predicted that, irrespective of the drought, the ongoing planting of macadamia nut trees would see a doubling of South Africa’s production by 2020. Whyte believed that a gradual increase over several years would be manageable if the industry focused now on continuously expanding existing markets and creating new ones.
 
“However, once the drought breaks, the trees that are ready to produce now will put us into an immediate position of oversupply. Prices could plummet. So, we need to take a position on how to deal with that,” he averred.
 
Whyte felt that a price crunch of this sort should be tackled by the industry acting cohesively rather than having individual players attempt to cope on their own. The South African Macadamia Growers Association is about to launch a promotion campaign to promote South Africa’s macadamias both locally and internationally.
 
“A fragmented approach by [the] industry would make it much easier for the market to exploit our collective weakness,” he emphasised.
 
GFNC had also already been in talks with food and beverage product development teams based globally because macadamias could make a superior health and taste contribution to items such as bread, cookies and ice-cream. “By engaging with new product development departments now, these companies can be ready to launch new products as supply increases. But, the ingredients industry is a vast new market that comes with its own very specific set of requirements,” Whyte pointed out.
 
Quality and food safety requirements in the ingredients sector, where the macadamias would be one of several ingredients in a product mixture, were far more onerous than in the snack industry, to which the majority of macadamias were currently sold, he said.
 
“One supplier can certainly break into the industry by meeting the necessary standards and doing the marketing spade work, as we are. But customers would want guarantees of supply and one processor on its own cannot offer that. The ingredients market is a significant opportunity for the industry to grow and we all need to grab it together.”