Niche products offer agricultural investors interesting options

View specific niche agriculture investment opportunities in South Africa here.

Niche agriculture, a high-growth sector both in South Africa and internationally, may be usefully divided into the following agricultural industries: crops, including those used for biofuels; stock, such as game; aquaculture and mariculture; and organic agriculture.

International interest in local and indigenous South African agricultural products including rooibos, aloe vera, hoodia gordonii, abalone and waterblommetjies is growing as demand on foreign markets for natural products increases. Locally, South African farmers are finding that, even though agricultural commodity prices have increased significantly lately, it is more financially viable to cultivate niche agricultural products because of higher international prices. Local demand is growing too - retail chain Woolworths reports 75% yearly growth in its organic range since its introduction in 2001.

With the support of the government at national, provincial and local levels and growing interest from financial institutions who realise the value associated with the subsector, niche agriculture is thriving in the country, making it an attractive option for investors. Late last year, for example, the national department of economic affairs and tourism announced an allocation of R100-million for mariculture projects in the coastal provinces of the country. Further, Investec Capital Projects is exploring financing biofuel projects as this industry becomes economically viable.

Niche livestock and crops
As Matthias Boddenberg, CEO of the Southern African - German Chamber of Commerce and Industry, points out, while in the past South Africa was an exporter of agricultural resources, today it can be considered an exporter of agricultural specialties. These include the dried flowers, fruit and ‘exotic’ meat (such as kudu, springbok and ostrich) it exports to Europe and the future possibilities of value-added renewable energy exports and biofuels.

Subtropical Limpopo especially produces a number of specialty fruits for export – in fact it produces most of the country’s mangoes, tomatoes, avocadoes and macadamia nuts. South Africa is the third largest producer of macadamias in the world, with production – nearly all of it exported to Europe – having increased five-fold in the last decade. It is expected to double again in the next five years. The provincial government and Trade & Investment Limpopo (TIL) are serious about facilitating development of new farm products and are investigating growing almonds, cassava and bamboo. Soya is being grown more widely in the country, both for production of organic soy products as well as for biofuels.

However, perhaps more importantly, South Africa is rich in indigenous crops that are gaining ground on international markets. Perhaps the most well known is rooibos tea, though other kinds of local plants are beginning to make an impact. These include honeybush tea and the medicinal herbs buchu and devil’s claw.

The biggest new local product making waves on the international scene is the succulent plant Hoodia gordonii. Hoodia has been used by the Khoi and San for millenia to survive in the Kalahari Desert of Southern Africa. The active component in the plant has been found to suppress the appetite and is now in growing demand as a natural ingredient in diet pills and other similar products. Cultivation and processing of Hoodia is expected to be an industry with massive future growth potential.

At least two of South Africa’s industrial development zones (IDZs), Mafikeng (North West) and East London (Eastern Cape), are availing investors with opportunities provided by niche crops by presenting themselves as platforms for beneficiation – the former focusing on biofuels and the latter on aquaculture and mariculture. East London IDZ CEO, Simphiwe Kondlo, sees export of processed agri-products as the next phase of the zone’s development.

Fresh from the sea – fresh from the farm
Marine aquaculture is one of the fastest growing food production systems in the world, with an average growth rate of 8.8% per year over the last half century. Profitability and demand for particular seafoods have led to this massive growth.

Today South Africa is regarded as the leading producer of cultured abalone in the world, with China its largest foreign market. Local abalone production has grown from a total of less than 100kg of farmed abalone in 1996 to approximately 900-tons in 2006, representing an export value of about R200-million.

Abalone farms operate at a number of venues along the coast, including East London IDZ and near Gansbaai in the Western Cape. The latter is owned by local black-empowered mariculture pioneer, Premier Fishing. CEO Kevin Patel announced in April that the farm was likely to be expanded in order to reach its production target of 300-tons. This R40-million investment would realise profits of R17-million annually, most of it from the Chinese market.

Inland from Gansbaai, in the Bergrivier Local Municipality, trout and waterblommetjies are farmed in dams and proteas in the veld alongside more traditional produce like fruit, wine grapes, sheep and cattle.

Biofuels as niche agriculture
Biofuel production in South Africa is currently confined to pilot projects and other individual projects for own consumption, but is not yet properly marketed as a commodity, says South African Biofuels Association (SABA) CEO Erhard Seiler. SABA represents 70 members, mostly companies, with a keen interest in commercialising biofuels in the country.

Different crops are suitable in the various climatic regions of the country. (For a more detailed look at the opportunities in biofuel production in South Africa visit the separate biofuels page.)

Growing organic markets
Organic farming is emerging as a potentially lucrative industry in South Africa on the back of bouyant global demand for chemical-free products. According to Pierre Leppan of the Eastern Cape Development Corporation (ECDC), while it is on the increase here, “it remains small compared with other countries’ organic output and in terms of total output”. However interest is growing among supermarkets, restaurants and caterers and production is not keeping pace with this demand.

Leppan cites the growth in the aloe vera industry in the province as a success story that is poised for further growth. Both the ECDC and TIL in Limpopo have been active in looking into the development of the European export market for South African organic products.