Required Report - public distribution

Date: 7/14/2005

GAIN Report Number: SF5026

SF5026

South Africa, Republic of

Exporter Guide

Annual Report

2005

Approved by:

![](media/image1.wmf)Scott Reynolds

#### **U.S. Embassy, South Africa**

Prepared by:

Amanda Marie Leister

Report Highlights:

The continued growth in GDP for over ten years has increased South
Africa\'s attraction as an investment and marketing platform for the
rest of Africa. In 2004, the U.S. exported \$192 million of
agricultural, fish, and forestry products to South Africa, a high since
1999 due in part to the appreciation of the value of the rand versus the
dollar. 2003 and 2004 wheat exports to South Africa were especially high
due to poor wheat crops in competing countries, a newfound preference
for U.S. hard red winter wheat, and a favorable exchange rate.
Intermediate agricultural products such as planting seeds are important
imports for South Africa, and animal fats have shown consistent and
substantial growth over the past five years. A variety of high-value
products such as almonds, pistachios, canned salmon, whiskey, and frozen
food preparations have shown consistent growth over the last five years
and present important opportunities for U.S. Exporters.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Pretoria \[SF1\]

\[SF\]

Table of Contents

SECTION I: MARKET
OVERVIEW:....................................................................................................
3

A. U.S. Market
Position:......................................................................................................................
4

B. Advantages and Challenges Facing U.S. Products in South
Africa:...\................................. 5

SECTION II: EXPORTER BUSINESS
TIPS:.....................................................................................
5

A. Local Business
Customs:................................................................................................................
5

B. Trade and Marketing
Services:......................................................................................................
5

C. Consumer Tastes and
Preferences:..............................................................................................
6

D. Food Standards and
Regulations:...............................................................................................
8

E. South Africa's Interaction with International Trade
Organizations..............................................8

F General Import and Inspection
Regulations:...........................................................................
9

SECTION III: MARKET SECTOR STRUCTURE AND
TRENDS:................................................... 10

A.
Competition:.....................................................................................................................................
10

B. Distribution Systems for Processed Food
Products:.................................................................
10

C. Trends in Advertising and Trade
Promotion:..............................................................................
11

D. Trends in
Tourism:............................................................................................................................
11

E. Trends in Online
Sales................................................................................................................
12

SECTION IV: BEST HIGH-VALUE PRODUCT
PROSPECTS:......................................................... 12

SECTION V: KEY CONTACTS AND FURTHER
INFORMATION:................................................... 13

A. Contact Information for Industries Mentioned in the
Report:.......................................... 13

B. Other Exporter Guides and General Market
Information:................................................... 14

C. Post
Contact:.................................................................................................................................
15

APPENDIX I:
STATISTICS:...............................................................................................................
16

A. Key Trade and Demographic
Information:...........................................................................
16

B. Consumer Food and Edible Fishery Product
Imports:......................................................... 17

C. Top 15 Suppliers of Consumer Foods and Edible Fishery
Products:................................. 19

# D. 2004 Top Exporting Nations of Agricultural, Fish and Forestry Products...............................19

E. Top Agricultural Exports to South Africa form the
World.............................................................19

F. Economic Sectors of South
Africa.....................................................................................................20

# **SECTION I: MARKET OVERVIEW**

The Republic of South Africa has a market-oriented economy and is a net
exporter of agricultural products. It has a highly diversified
agribusiness sector and is self sufficient in primary foods with the
exceptions of wheat, oilseeds and rice. Because of South Africa's
well-developed processed food and competitive horticultural sectors,
U.S. exports to South Africa consist mostly of bulk and intermediate
agricultural products. The economic sectors of South Africa consist of
agriculture: 3.8%, industry: 31%, and services: 65.2%.

2004 saw a strengthening in the value of the rand, while in previous
years U.S. exports were negatively impacted by the decline in the value
of the rand compared to the dollar. The average weighted exchange rate
of the rand to the U.S. dollar dropped to 6.44 in 2004 from 7.56 in 2003
and R10.52 in 2002. The combination of the weak dollar against the
strong rand and euro is helping to make U.S. products more affordable
and to increase American exports to South Africa.

[]{.mark}

Over the last five years the United States has exported an average of
163 million dollars per year of agricultural, fish and forestry products
to South Africa. Bulk agricultural commodities such as wheat and course
grains have been exported in substantial quantities in the last two
years. American rice exports in the South African market have
drastically dropped in 2003/2004 due to its high price. U.S. wheat
exports to South Africa have been especially high in 2003 and 2004 due
to poor wheat crops in competing countries, a newfound preference for
U.S. hard red winter wheat, and a favorable exchange rate. Intermediate
agricultural products, such as planting seeds, are an important export
to South Africa. Animal fats have shown consistent and substantial
growth over the past five years, and exports of animal hides have
significantly grown for the past three years as well. Several high value
products like almonds, pistachios, canned salmon, whiskey, and frozen
food preparations have shown consistent growth over the last five years
and represent important opportunities for U.S. exporters. The exports of
edible fish and seafood sharply increased in 2004 and there are many
opportunities for sustained growth in this sector as well.

The South African food and beverage market is becoming increasingly
sophisticated and now offers a wide range of imported products. This
development caused the exports of sugars, sweeteners and beverage bases
to increase in 2004. The market is divided into two segments, the first
prosperous and largely white, the second poor and largely black.
(However, the black population's buying power is increasing and
improving the market for imported food products.) South Africans in the
middle and upper income levels are demanding healthier, convenient,
quality foods, while the poor majority requires basic staple foods at
affordable prices. For example, the organic foods market is growing
rapidly in South Africa and supermarkets are using promotions that
emphasize the health benefits of various products. Also, the food
retailer Pick AND Pay has opened stores in township areas, places that
have been historically underserved by large supermarket style stores.

[]{.mark}

Market surveys have repeatedly shown that price sensitivity rules
consumer behavior. South African industry leaders concur with a current
ACNielsen study that supports this conclusion, stating that price, above
other factors like quality or appearance, is the primary factor in
selecting a product. However, an interesting idiosyncrasy of the South
African market is that price may be less of a factor in townships, where
consumers often show significant brand loyalty for certain branded
items.

+--------------------------+-------+------------------------+--------+
| Table: Trade of major    |       |                        |        |
| agricultural, forest and |       |                        |        |
| fishery products between |       |                        |        |
| US and South Africa for  |       |                        |        |
| calendar year 2004.[^1]  |       |                        |        |
+--------------------------+-------+------------------------+--------+
| South Africa\'s Major    |       | South Africa\'s Major  |        |
| Bulk, Intermediate and   |       | Bulk, Intermediate and |        |
| Consumer-Oriented        |       | Consumer-Oriented      |        |
| Agricultural Imports     |       | Agricultural Exports   |        |
| from                     |       | to the United States   |        |
|                          |       |                        |        |
| the United States        |       |                        |        |
+--------------------------+-------+------------------------+--------+
| Jan-Dec 2004             | \$mil | Jan-Dec 2004           | \$mi   |
|                          | lions |                        | llions |
+--------------------------+-------+------------------------+--------+
| Wheat                    | \     | Other Fresh Fruit      | \$     |
|                          | $51.1 |                        | 46.7\* |
+--------------------------+-------+------------------------+--------+
| Coarse Grains            | \     | Wine and Beer          | \$     |
|                          | $10.9 |                        | 33.0\* |
+--------------------------+-------+------------------------+--------+
| Hides & Skins            | \$1   | Tree Nuts              | \$     |
|                          | 3.2\* |                        | 19.4\* |
+--------------------------+-------+------------------------+--------+
| Animal Fats              | \$6.9 | Fruit and Vegetable    | \$11.3 |
|                          |       | Juices                 |        |
+--------------------------+-------+------------------------+--------+
| Planting Seeds           | \$9.8 | Processed Fruits &     | \$9.0  |
|                          |       | Vegetables             |        |
+--------------------------+-------+------------------------+--------+
| Tree Nuts                | \$    | Raw Beet & Cane Sugar  | \$9.2  |
|                          | 4.0\* |                        |        |
+--------------------------+-------+------------------------+--------+
| Sugars, Sweeteners &     | \$    | Other Value Added Wood | \$     |
| Beverage Bases           | 5.8\* | Products               | 29.0\* |
+--------------------------+-------+------------------------+--------+
| Other Consumer Oriented  | \$1   | Nursery Products & Cut | \      |
| Products                 | 1.4\* | Flowers                | $4.7\* |
+--------------------------+-------+------------------------+--------+
| Hardwood Lumber          | \$9.7 | Tea                    | \      |
|                          |       |                        | $1.2\* |
+--------------------------+-------+------------------------+--------+
| Panel Products           | \$6.4 | Lobster                | \$16.9 |
| (including Plywood)      |       |                        |        |
+--------------------------+-------+------------------------+--------+
| Edible Fish & Seafood    | \$    | Other Edible Fish &    | \$13.2 |
| Products                 | 4.5\* | Seafood                |        |
+--------------------------+-------+------------------------+--------+
| Agricultural Total       | \$1   | Agricultural Total     | \$15   |
|                          | 67.66 |                        | 4.74\* |
+--------------------------+-------+------------------------+--------+
| Agricultural Fish &      | \$1   | Agricultural Fish &    | \$21   |
| Forestry Total           | 92.44 | Forestry Total         | 9.48\* |
+--------------------------+-------+------------------------+--------+

A. U.S. Market Position:

South Africa's 2004 total agricultural, fish and forestry imports
amounted to \$2.88 billion, up from 2.1 billion in 2003. The leading
suppliers were Argentina \$454.88 million, Brazil \$283.78 million, the
United States \$239.91 million, Thailand \$197.45, Malaysia \$161.83
million, and the United Kingdom \$156.76 million.

![](media/image2.wmf)

# **B. Advantages and Challenges Facing Sales of U.S. Products in South Africa**

  ----------------------------------- -----------------------------------
  Advantages                          Challenges

  Favorable exchange rate. Strong     Retailers and consumers have
  rand and euro with the weak dollar  limited knowledge about the variety
  make American imports more          of U.S. products.
  affordable.                         

  South African consumers view U.S.   Acquired tastes and preferences for
  products as high quality.           traditional, locally produced
                                      products.

  South African importers seek        Challenging for U.S. suppliers to
  suppliers who can offer quality     respond to trade-lead inquiries in
  products at competitive prices.     a timely fashion.

  The growing retail industry needs   Competition from other countries
  imported food and beverage          and locally produced products.
  products.                           

  Transparent import regulations.     

  A steady decline in tariff levels   
  on most products.                   
  ----------------------------------- -----------------------------------

# 

# **Section II: EXPORTER BUSINESS TIPS**

A. Local Business Customs:

Generally, business hours are weekdays from 8:00 a.m. to 1:00 p.m. and
2:00 p.m. to 4:30 p.m. Most offices observe a five-day week, but shops
are generally open from 8:30 a.m. to 5:30 p.m. weekdays and from 8:30
a.m. to 1:00 p.m. on Saturdays. Banks are open weekdays from 9:00 a.m.
to 3:30 p.m. and Saturdays from 8:30 a.m. to 11:00 a.m. The monetary
unit of South Africa is the rand (R), which is divided into 100 cents
(c). Shopping is similar to that in the United States, with large and
very modern shopping centers providing diverse product lines similar to
those found in the United States.

Terms of Payment: Business transactions in South Africa are commonly
carried out on open terms with payments being made within 45 to 50 days
after bill of lading. However, when working with new clients,
irrevocable letters of credit are advisable. Cash against documents
arrangements are also used, although there are some risks in these
arrangements that make letters of credit a safer alternative for the
exporter.

B. Trade and Marketing Services:

Franchising: According to the Franchise Association of Southern Africa,
the largest franchise sector in South Africa is fast food, representing
29% of the franchise industry. According to 2002/2003 surveys, South
Africa's most popular take-out food item is chicken. However, pizza,
hotdogs and chips (french fries), and hamburgers are also popular
choices. The survey also specified that of the consumers, who preferred
chicken, 66% were black and 18% were white. An example of a successful
franchising operation is "Famous Brands," which has recently doubled its
number of restaurant outlets from 562 to 1040. The Famous Brands
franchise model includes a manufacturing facility that supplies bakery,
butchery and sauce products to franchises including Steers and Wimpy's
(hamburger restaurants), Church's Chicken, Debonairs Pizza, Brazilian
Coffee and House of Coffees. The Franchise Association held its annual
Franchise Exposition at the Sandton Convention Center in May 2005 and
had a record attendance of 8,615 people. This was a 56% increase from
2004, and the franchise industry is expected to grow in the coming years
with increased interest from producers and consumers. The addition of
forecourts, which is a convenience store linked to a gas station, is an
expanding venture that provides opportunities for U.S. producers as
well. South Africa has

fixed gasoline prices nationwide, and gas stations are realizing that
there are more potential profits to be made by selling other items to
consumers such as food, snacks, beverages and other products in addition
to gasoline. Restaurant franchises are joining with gas stations to
create an enticing atmosphere and to encourage customers to purchase
more than gasoline. U.S. franchises have the ability to link with South
African gas stations to reap the benefits in profit from the convenience
provided for consumers in forecourts.

Direct Marketing: Although South Africa's foreign exchange controls and
import documentation requirements have been relaxed, we recommend that
U.S. companies contract with a South African agent or partner who would
be responsible for marketing the product, holding stock, fulfilling
purchasing transactions and remitting revenue to the U.S. company.
Companies interested in learning more about South Africa's mail order
sector may contact the South African Direct Marketing Association.

Joint Venture/Licensing: Exchange control regulations stipulate that the
South African Reserve Bank (SARB) must approve the payment of royalties.
When a licensing agreement involves no manufacturing, the request for
exchange control approval is sent directly to SARB. For a company
interested in entering into a licensing agreement with a local company
to manufacture a product in South Africa, the South African licensee
must submit an application to the industrial Development Branch of the
Department of Trade and Industry. The application should include a draft
licensing agreement and a questionnaire (Form MP 337). The Department of
Trade and Industry, in turn, will make a recommendation to the SARB.
Additional information on licensing regulations can be obtained from the
Directorate of Technology Promotion.

Steps in Establishing an Office: Foreign companies that wish to
establish a subsidiary in South Africa must register in accordance with
the Companies Act of 1973. The Act, which is administered by the
Registrar of Companies, regulates the formation, conduct of affairs, and
liquidation of companies. The Act makes no distinction between locally
owned or foreign owned companies, and companies may be either private or
public. For more information, please see the Department of Trade and
Industry website at [**www.dti.gov.za**](http://www.dti.gov.za/).

**C. Consumer Tastes and Preferences:**

South African food retailers serve a wide range of consumers. At one
end, there are supermarkets very similar to those found in the United
States. These shops provide most of the products and services found in
U.S. grocery stores like processed foods, packaged meats and fancy
produce. South Africans are also able to purchase organic products and
vegetables, which are fast growing segments of the retail food market
(lead by organic baby food). Many supermarkets serve pre-assembled meal
items such as roasted chickens and cut vegetables ready for soup,
stir-fry, and salads, while others sell ready-made meals like sandwiches
and sushi. At the other end, consumers are also well served by a
thriving informal sector. Spazas are independent grocers that are
typically found in townships and generally specialize in staple foods
like cornmeal, rice, cooking oils and meats. They may also sell soft
drinks and other low-priced consumer oriented goods. The food retailer
Pick 'N Pay has also opened stores in township areas, which have been
historically underserved by large supermarket style stores.

Despite the variety of options available to South African consumers,
price sensitivity rules their behavior. A source survey in 2002 found
that 47.8% based their decisions on price and 16.9% buy store brand
(generic brand) items because they are good value for money. Only 13.4%
mentioned quality as a motivator, while 4.3% perceived the store brand
to be equal to name brand items. Products that are successful with store
brand labels include milk, syrups, dry pasta, nuts, canned fruits and
jellies.

Although many South Africans choose products according to price,
consumers in townships often demonstrate contradictory demands and
characteristics. For example, spazas and other informal shops tend to
only supply leading brand items because their customers demonstrate
strong brand loyalty. Adding to this trend is the fact that the black
population's buying power is increasing. At the same time, product
attributes that may help a product succeed in township markets are less
expensive and/or single service package sizes and ambient-stable
products that do not require refrigeration. A local research company
recently reported findings that confirm this, stating, "we have heard
for the past 20 years that the \[low income\] consumer wants smaller
packaging, but it is still amazing how many manufacturers do not heed
that call."

South Africans love meat, and barbeque, called braai, is very popular.
Braai products, such as sauces, are also popular, especially sweet and
spicy flavors. A wide variety of meats are available, such as beef, beef
sausages, lamb, game meats, and poultry. Fish is also gaining popularity
as consumers are seeking healthier alternatives to meat. (South Africans
eat more beef and lamb than pork. It has been generalized that they eat
about as much pork as Americans eat lamb, and as much lamb as Americans
eat pork.)

According to ACNielsen research, health information is becoming an
important component of food retailing. Consumers would like to see more
health, nutritional and weight loss information in stores. These
consumers will most likely fit in the categories of:

1)  Older female consumers who are interested in diet as a way to obtain
    good health in place of exercise

2)  Young people and high Living Standard Measurement (LSM) consumers
    who are becoming increasingly aware of the importance of a good diet
    and exercise in order to maintain good health

3)  Low LSM consumers, many of whom are feeling the impact of HIV/AIDS
    on their families and are thus in need of healthy food products.
    However, due to hard financial times for poor South Africans, health
    products for low LSM consumers will not find a place on grocer's
    shelves unless they are developed as viable substitutes for basic
    staples

South African farmers and manufacturers are becoming increasingly
responsive to food safety issues. As South African supermarkets and food
distributors continue to integrate their food supply chains, they are
able to better provide traceability/accountability services for
consumers. This is especially important in order to satisfy export
market demands. However, food safety has a much lower profile in South
Africa than in the U.S. or Europe, perhaps due to fewer incidents or due
to problems in identifying food safety problems. In 2002, South Africa
approved a set of food safety regulations that embrace the important
principles of HACCP and follow the Codex Alimentarius model. Under this
regulation, exports to South Africa must meet the same food safety
standards as apply to South African food producers. For more information
on HACCP, please refer to [Regulations Relating to the Application of
the Hazard Analysis and Critical Control Point System (HACCP
System)]{.underline} at [**www.doh.gov.za**](http://www.doh.gov.za/),
(click on documents then regulations.) The South Africa Consumer Goods
Council also created a Unified Food Standards Body in April 2005 that is
similar to the European Union's. This has been established to unify the
activities and actions related to food safety by the private sector,
government, academic institutions and consumers, and it is hoped that
the new governing body will clarify food regulations and standards.

D. Food Standards and Regulations:

**Agricultural Standards**: The Directorate of Plant Health and Quality
with the National Department of Agriculture is responsible for setting
standards for certain agricultural and agricultural-related products.
This includes aspects such as composition, quality, packaging,
marketing, and labeling as well as physical, physiological, chemical,
and microbiological analyses. These standards are published in the
Agricultural Product Standards Amendment Act of 1998 and the Liquor
Products Act of 1989 as regulations for products to be sold on the local
market and in the form of standards and requirements for products
intended for export.

Food Labeling: According to the Foodstuffs, Cosmetics and Disinfectants
Act of 1972: Regulations Relating to Labeling and Advertising of
Foodstuffs, labels on food products must include the following points:

a\. The name of the product

b\. The name and address of the manufacturer, packer, seller, importer,
or person on whose behalf the foodstuff is pre-packed

c\. A list of ingredients in descending order (of mass) under the
heading "Ingredients"

d\. A label written in at least one of the official languages of South
Africa. (This includes English)

e\. Instructions for special storage conditions, when applicable

f\. The product's country of origin

In practical terms, most U.S. products meet South African labeling
regulations. However, there are regulations regarding the usage of
certain words and expressions that imply health-giving properties.
Precise explanations of the terms and conditions for food product
labeling can be found at
[**http://www.doh.gov.za/**](http://www.doh.gov.za/). (Click on
Documents, then Regulations, then Regulations Relating to Labeling and
Advertising of Foodstuffs, August 8, 2002; #1055. Note that the annexure
section of this document provides information on required nutrition
analysis).

A useful reference is the GAIN Report SF4029, Food and Agricultural
Import Regulations and Standards for South Africa, which was written by
our office in August 2004 and can be found at the following link:
[**http://www.fas.usda.gov/gainfiles/200410/146117652.pdf**](http://www.fas.usda.gov/gainfiles/200410/146117652.pdf)

###### E. South Africa's Interaction with International Trade Organizations

South Africa is a member of the World Trade Organization (WTO) and
follows the Harmonized System (HS) of import classification. South
African shipments are eligible for Generalized System of Preferences
(GSP) and African Growth and Opportunity Act (AGOA) treatment in the
United States, which brings US tariffs on most goods to zero. US
shipments to South Africa qualify for Most Favored Nation treatment.

There is free trade between South Africa and the other four countries
(Botswana, Lesotho, Namibia, and Swaziland) comprising the Southern
African Customs Union (SACU). There will also be substantially free
trade between South Africa and the European Union by 2008 as a result of
the Free Trade Agreement between them. The Southern African Development
Community (SADC) Free Trade Agreement should also allow the free
exchange of goods among the 14 countries of the region when it comes
into full effect, but this will be a long-term project.

A Trade, Development, and Cooperation Agreement containing a Free Trade
Agreement (FTA) went into force between South Africa and the European
Union (EU) on January 1, 2000. Under the FTA, the EU is committed to the
full liberalization of 95 percent of South African imports over a
10-year transitional period, while South Africa is to liberalize 86
percent of EU imports over a 12-year transitional period. A Free Trade
Agreement is currently being negotiated between the United States and
the Southern Africa Customs Union (which contains South Africa);
however, negotiations have been at a standstill for a year. South Africa
and its SACU partners will meet with U.S. representatives in July 2005
in Geneva to try to restart the discussions.

F. General Import and Inspection Procedures:

Import Permits: All food consignments are subject to random checking and
sampling at points of entry all over the country to ensure food items
imported into the country are safe and comply with the prescribed
standards and regulations. International freight forwarders normally
handle documentation and other formalities with authorities at entry
points. Provided all necessary documents are in order, no problems or
delays should occur in clearance of goods. Under the Import and Export
Control Act of 1963, the Minister of Trade and Industry may control the
import of certain goods into South Africa. The list of restricted goods
has decreased in recent years. Products that still require import
permits are fish and fish products.

Tariffs: Since 1994 South Africa has reformed and simplified its tariff
structure in order to comply with its WTO commitments. It has reduced
tariff rates from an import-weighted average tariff rate of more than 20
percent to 7 percent. Notwithstanding these reforms, importers have
complained that South Africa's tariff schedule remains complex and can
create uncertainty. Tariff rates mostly fall within eight levels ranging
from 0 percent to 30 percent, but some are higher. There are high
tariffs on imports of textiles and apparel. Antidumping duties remain on
U.S. chicken parts through December 2005, and the South African Poultry
Association has petitioned the Government (ITAC) to extend those duties
for another 5 years. Please read SF3027 for further information on
poultry duties.

Biotechnology: There has been an active debate in South Africa on food
produced using modern biotechnology - often referred to as genetically
modified food (GM). The Genetically Modified Organisms Act that came
into force on December 1, 1999, aims to ensure that all activities
involving the use of GMOs (including production, import, release and
distribution) will be carried out in such a way as to limit possible
harmful consequences to the environment. In June 2001, the South African
government published the National Biotechnology Strategy for South
Africa, expressing the South African government's intent to stimulate
the growth of biotechnological industries. The document states that
biotechnology can make an important contribution to national priorities,
particularly in the area of human health, food security and
environmental sustainability.

As of June 2005, South Africa has approved 9 different general release
genetically modified seed varieties, known as "events," for commercial
planting, import, export, human consumption or animal feed. There are
several other events that are allowed for import only and are not
locally planted, along with others that are being field tested for
possible future South African production. Presently, no "stacked event
GMOs" (multiple events combined into one seed) have been approved for
commercial planting, but South Africa is currently reviewing certain
stacked events for general release in the future.

The South African Department of Health created regulations regarding GMO
labeling. These regulations, issued on January 16, 2004, state that food
with genetically modified ingredients require labeling only if its
composition, nutritional value, or mode of storage or cooking is
significantly different from conventional food.

For more information on GMO labeling and definitions of GMOs that
require labeling, please refer to [Regulations Relating to the Labeling
of Foodstuffs Obtained Through Certain Techniques of Genetic
Modification]{.underline} 16 January 2004
([**www.doh.gov.za**](http://www.doh.gov.za/), click on documents then
regulations). For more information on biotechnology in South Africa, see
[**www.africabio.com**](http://www.africabio.org/). Further references
are the Gain reports SF3009 and SF4029 (Trade Policy Report and Food and
Agricultural Import Regulations and Standards Report.)

# **SECTION III: MARKET SECTOR STRUCTURE AND TRENDS**

A. Competition:

Exports: South Africa's agricultural exports for 2004 reached a total of
\$4.496 billion, up from \$4.051 billion in 2003. South Africa's five
largest export destinations were the U.K. (\$562.223 million), Japan
(\$486.588 million), the Netherlands (\$437.157 million), Italy
(\$222.317 million) and the United States (\$202.419 million). South
Africa's most important exports to the United States are fresh citrus,
wine, tree nuts, fruit juice, lobster, non-coniferous wood chips, and
value-added wood products.

[]{.mark}

Imports: South Africa's total agricultural imports for 2004 rose to
\$2.877 billion from \$2.1 billion in 2003. The leading suppliers were
Argentina (\$454.884 million), Brazil (\$283.776 million), the United
States (\$239.91 million), Thailand (\$197.445 million), and Malaysia
(\$161.833 million). South Africa's major imported agricultural
commodities from the United States in 2004 were wheat, coarse grains,
other prepared foods such as frozen and canned vegetables, other
intermediate agricultural products, hardwood lumber and hides & skins.

B. Distribution Systems for Processed Food Products:

Retail: Retail trade outlets in South Africa offer the full spectrum
available in the United States. These range from the neighborhood
convenience drugstore (called cafés), to the small general dealer,
specialty stores handling a single product line (for example, clothing,
electronics, furniture), exclusive boutiques, chain stores (groceries,
clothing, toiletries, household goods), department stores, cash and
carry wholesale-retail outlets, to co-operative stores serving rural
areas. About 90 percent of inventories of consumer-ready products in
these stores are domestically sourced. A major phenomenon in South
Africa has been the evolution of hypermarkets, which sell large
quantities of almost all consumer goods, similar to a Price Club retail
store in the U.S. The hypermarkets, located in suburban shopping
centers/malls, have disrupted the traditional distribution chain by
purchasing directly from manufacturers and bypassing the wholesaler, and
with low margins achieving high turnover, thereby placing price pressure
on all competing outlets.

Most U.S. exporters of consumer goods sell directly to South African
retail organizations, such as department stores, chain stores, and
cooperative groups of independent retailers, which assume the functions
of wholesale buying, selling, and warehousing.

It may be necessary to appoint an official after-sales agent for
products of a technical nature in South Africa. This may be a company
that does not import or market the product in question, but rather,
because of its geographical reach, technical abilities and goodwill in
the market, acts as the certified service agent. Appointing an
appropriate after sales agent is crucial in ensuring that the product
develops a respected reputation in the South Africa.

Importers: In South Africa, only a few importers specialize in one
product. Most importers are generalists who import a wide range of food
products. It is important for an exporter to work with someone locally
who knows the market well for the specific product in question. Agents
who represent one foreign supplier are also relatively rare.

Wholesalers: Catering Wholesalers: Catering wholesalers purchase food
products from various manufacturers and resell these products
predominantly to catering establishments. Catering wholesalers offer the
establishments a variety of food products, and some carry a select
product range of specially packed \"house brands\". They also import
large volumes of products that are sold to catering establishments.

Broker Agents: Broker Agents are mostly involved with government or
other large food supply contracts. They tender for government contracts
on behalf of different manufacturers. Some agents have their own
warehouses and distribution facilities.

Distributor Agents: The distributor agent distributes food products on
behalf of manufacturers without necessarily taking ownership of the
actual products. A distributor is usually required to adhere to prices
determined by the manufacturer and is paid a fee to distribute the
products.

Contract and Independent Caterers: Contract and independent caterers
purchase food products directly from manufacturers, wholesalers, and
catering wholesalers.

For more information on distribution systems, please refer to
[**www.mbendi.co.za**](http://www.mbendi.co.za/). Click on Trade
Services (under Related) then guides to importing, then "Succeeding in
the SA market"/ "Market Entry Strategies."

# **C. Trends in Advertising and Trade Promotion**

South Africa has a sophisticated advertising industry. The four key
players in South Africa's advertising industry are the Association of
Advertising Agencies (AAA), the Association of Marketers (ASOM), and the
two major media bodies, the National Association of Broadcasters (NAB)
and the Print Media Association (PMA). Additional information can be
obtained from the Association of Marketers and the Association of
Advertising Agencies (see contact details at the end of the report).

More recently, food promotions have moved towards advertising goods
based on health related issues and "nutrition function" claims. Some
South African consumers are becoming diet and health conscious, and are
becoming more responsive to products that address issues such as weight
loss or disease prevention. Also, American television and culture is
having an increasing influence on South Africans, leading to the
adoption of social morays like "thin is beautiful."

D. Trends in Tourism:

South African tourism grew in 2004 and has continued to grow in 2005.
While global overseas arrivals dropped from 2003, South Africa saw an
increase 4.8% overall increase in 2004, and has experienced 10.3% growth
in tourism in the first quarter of 2005 as well.  Despite a strong rand,
South African Tourism's 2005 Quarterly Reports predict that the
country\'s tourism will continue to outperform the global average. South
Africa will host the 2010 Soccer World Cup, which will impact the
overall growth of this sector.

Eco-tourism is the fastest growing segment of the South African tourism
industry, including bird watching, nature photography, hiking and
mountaineering, visits to cultural heritage villages and sites of San
(bushman) rock art.

The tourism accommodation industry in South Africa provides a wide
spectrum of lodgings - from the formal hotel sector to the informal
holiday flats and cottages, game lodges and reserves, guesthouses, youth
hostels, and bed-and-breakfast inns. There are more than 1,500 licensed
hotels in South Africa, and of the estimated 30,000 rooms, about 46
percent are categorized as \"not graded\" while 20 percent are graded
\"four-star\" or better. Rates are considered modest depending on the
type of accommodations. Tap water is safe to drink in most areas, and
there is normally a selection of still and sparkling waters in
restaurants. Eating customs and menus are similar to those in Western
Europe.

For more information on South African tourism, please refer to South
African Tourism's Research section at
[www.southafrica.net](http://www.southafrica.net/) (at the bottom of the
home page click on "research.")

**E. Trends in Online Sales:**

Online sales accounted for only 0.14% of the total retail market in
2003. Although the number of online retailers in South Africa has more
than tripled since 2001, about eight businesses account for 80% of
online sales. Of these eight websites, many are associated with an
established retail shop (for example Woolworths and Pick 'n Pay) and are
able to offer specialized services like same day home deliveries and no
cost returns. The most popular goods to purchase online are groceries,
apparel and books. The fastest growing retail categories (in descending
order) are flowers and gifts, apparel, food, beverages and groceries.
Online sales in 2003 increased by 35% and were expected to increase by
25% in 2004. Also, about 20% of 2003 online sales occurred during the
November-December holiday season.

**SECTION IV: BEST CONSUMER ORIENTED PRODUCT PROSPECTS**

Five-year trends show that some U.S. Consumer-Oriented Agricultural
exports to South Africa are growing. Of interest is the Other
Consumer-Oriented Products sub-category, which reached a 30-year high in
2004. Within this sub-category, other food preparations (HS210690) have
shown consistent and substantial increases. Other high value exports
that have shown sustained growth are almonds (HS08021200), pistachios
(HS08025000), canned pink salmon (HS16041100), whiskey (HS220830) and
vegetable seeds (HS120991).

According to 2004 data, the United States enjoys a dominant position in
the almond, canned salmon and other food preparations markets, holding
86.27%, 69.61% and 23.95% of market share respectively. The whiskey
market is significantly different. In 2003, the U.K. held 85% of market
share while the United States held only 6.68%. However, the United
States increased whiskey exports to South Africa in 2003 and 2004 and
now holds 23.95% of the market. The U.S. has seen annual growth increase
over the past 5 years by an average of 21% per year in this sector. This
growth may be due, in part, to a South African preference for
successfully promoted American branded products (Jack Daniels, for
example). This preference is expected to continue and should help other
American products be more competitive in South Africa. This along with
successful marketing techniques and brand awareness may lead to the
growth of other American-branded, high-value products.

  -------------- ---------- ----------- --------- --------- ------------- ----------------
  Product        2004 South 2004 U.S.   Annual    Import    Key           Market
  Category       Africa     Exports to  Import    Tariff    Constraints   Attractiveness
                 Market     S.A.        Growth    Rate      Over Market   for U.S.
                 Size       (\$1,000)   U.S.                Development   

  Whiskey        114.789    16.656      239.44              United        American brands
  HS220830                                                  Kingdom has   are considered
                                                            large market  high quality and
                                                            share and a   attract new,
                                                            first mover   younger
                                                            advantage.    consumers.

  Pistachios     0.67       0.187       58.24%    Free      Iran has      []{.mark}
  HS08025000                                                69.28% Market 
                                                            Share         

  Almonds        4.815      4.154       61.22%    Free                    U.S. has largest
  HS08021200                                                              market share.

  Canned Pink    2.65       1.845       109.84%   25%       []{.mark}     U.S. has largest
  Salmon                                                                  market share.
  HS16041100                                                              

  Other Food     70.409     16.863      49.48%    Varied    []{.mark}     American brands
  Preparations                                                            are becoming
  HS210690                                                                increasingly
                                                                          popular given
                                                                          their high
                                                                          quality
                                                                          attributes

  Vegetable      11.275     3.068       10.62%    Free      Netherlands   []{.mark}
  Seeds HS120991                                            leads sector  
                                                            with 32.59%   
                                                            Market Share  
  -------------- ---------- ----------- --------- --------- ------------- ----------------

SECTION V: KEY CONTACTS AND FURTHER INFORMATION

A. Contact Information for Industries Mentioned in the Report.

Franchise Association of Southern African (FASA)

Tel: 27-11-484-1285

Fax: 27-11-484-1291

Contact: Mr. Nic Louw, Executive Director

Website: **[http://www.fasa.co.za](http://www.fasa.co.za/)**

**[Email: fasa@faso.co.za]{.underline}**

South African Paper Industry

Tel: 27-11-360-0000

Fax: 27-11-816-1405

Website: **[http://www.sappi.com](http://www.sappi.com/)**

South African Direct Marketing Association

Tel: 27-11-482-6440

Fax: 27-11-482-1200

Contact: Mr. Davy Ivins, Executive Director

Department of Trade and Industry

Board on Tariffs and Trade

Tel: 27-12-320-2085

Fax: 27-12-320-2085/310-9500

Website: **[http://www.dti.gov.za](http://www.dti.gov.za/)**

Department of Trade and Industry

Directorate: Technology Promotion

Tel: 27-12-310-9839

Website: **[http://www.dti.gov.za](http://www.dti.gov.za/)**

South African Companies Regulatory Office

Registrar of Companies

Tel: 27-12-310-9791

Fax: 27-12-328-3051

http://www.cipro.co.za

Association of Marketers (ASOM)

Tel: 27-11-706-1633

Fax: 27-11-706-4151

Contact: Mr. Derrick Dickens, Executive Director

**[Email: asom@pixie.co.za]{.underline}**

Association of Advertising Agencies (AAA)

Tel: 27-11-781-2772

Fax: 27-11-781-2796

**[Email:]{.underline} <lizelle@aaaltd.co.za>**

Industrial Development Corporation of SA, Ltd (IDC)

Tel: 27-11-269-3000

Fax: 27-11-269-3116

Contacts: Mr. Khaya Ngqula, Managing Director

Mr. Ted Droste, General Manager

Website: **[http://www.idc.co.za](http://www.idc.co.za/)**

# B. Other Exporter Guides and General Market Information

[**www.ussatrade.co.za**](http://www.ussatrade.co.za/): The US
Commercial Service has an annual South Africa Country Commercial Guide
that presents a comprehensive look at South Africa\'s commercial
environment, using economic, political and market analysis. The guide is
currently being formatted for online access. Copies of the guide may be
obtained through the US Commercial Service:
[**Johannesburg.Office.Box@mail.doc.gov**](mailto:Johannesburg.Office.Box@mail.doc.gov)
Tel: 27-11-778-4800

[**www.mbendi.co.za**](http://www.mbendi.co.za/): This site contains
information on different aspects of exporting to South Africa including
an exporter guide entitled "Succeeding in the South African Market." In
order to access the exporter guide, click on Trade Services (under
Related) then on guides to importing. This page contains several links
related to exporting goods to South Africa, including the guide, which
provides an overview of South Africa and its trade environment.

[**www.werksmans.co.za**](http://www.werksmans.co.za/): This site also
contains general information on doing business in South Africa. In order
to view it, go to the website and click on SA Business Guide.

The website of the law firm Cliffe Dekker provides general information
on basic legal issues for doing business in SA. The topics range from
establishing an office in South Africa to taxation and black economic
empowerment. This can be found through their website at
[www.cliffedekker.co.za](http://www.cliffedekker.co.za/), click on
literature, then Business and Investment in South Africa.

# **C. Post Contact**

If you have any questions or comments regarding this report or need
further assistance, please contact AgPretoria at the following address:

Foreign Agricultural Service

U.S. Embassy Pretoria, South Africa

Washington, D.C., 20521-9300

Tel: 011-27-12-431-4057

Fax:011-27-12-342-2264

**[Email: agpretoria@fas.usda.gov]{.underline}**

For more information on exporting U.S. agricultural products to other
countries, please visit the Foreign Agricultural Service's website at:
[**http://www.fas.usda.gov**](http://www.fas.usda.gov/)

# 

# **APPENDIX I: STATISTICS**

A. KEY TRADE & DEMOGRAPHIC INFORMATION

  ----------------------------------------------------------- ---------------
  2003 Agricultural Imports From All Countries (\$Million) /  \$1,754/8%
  U.S. Market Share                                           

  2003 Consumer Food Imports From All Countries (\$Million)/  \$508/6%
  U.S. Market Share                                           

  2003 Edible Fishery Imports From All Countries (\$Million)  \$71/3%
  / U.S. Market Share                                         

  2003 Total Population (Millions) / Annual Growth Rate       45.3/1.1%[^2]

  Urban Population (Millions) / Annual Growth Rate            22/1.9%

  Number of Major Metropolitan Areas                          9

  Size of Middle Class                                        9,478,480[^3]

  2003 Per Capita Gross Domestic Product (US Dollars)         \$4,117.1[^4]

  Unemployment Rate                                           37%

  Per Capita Food Expenditure (U.S. Dollars)                  \$458[^5]

  Percent of Female Population Employed                       24.7%[^6]

  2004 Average Weighted Exchange rate                         \$1=R6.44[^7]
  ----------------------------------------------------------- ---------------

**C. TOP 15 SUPPLIERS OF CONSUMER FOODS & EDIBLE FISHERY PRODUCTS**

  ------------------- -------- -------- -------- --- ------------------ -------- -------- --------
  CONSUMER-ORIENTED                                  FISH & SEAFOOD                       
  AGRICULTURAL                                       PRODUCTS -- 700                      
  TOTAL - 400                                                                             

  Reporting: South    Import   Import   Import       Reporting: South   Import   Import   Import
  Africa                                             Africa                               

  Top 15 Ranking      2001     2002     2003         Top 15 Ranking     2001     2002     2003

                      Value    Value    Value                           Value    Value    Value

                      1000\$   1000\$   1000\$                          1000\$   1000\$   1000\$

  Brazil              23816    27022    60550        Thailand           7841     7261     12245

  United States       27600    25908    32954        Philippines        8621     7039     8078

  Netherlands         19218    20409    28431        Mozambique         5509     5577     7112

  Australia           31048    23269    27847        India              4929     4429     6799

  Italy               17326    17265    27727        Spain              1370     1450     3900

  China (Peoples      14398    8509     26869        Norway             3831     2570     3607
  Republic of)                                                                            

  United Kingdom      21703    16645    26299        Taiwan (Estimated) 4646     1813     3391

  France              25542    22113    24860        New Zealand        1888     1534     3331

  Argentina           4714     10017    22333        Argentina          0        978      3190

  Germany             17268    19290    21594        Japan              1753     1805     2017

  New Zealand         16792    17680    19455        United States      1105     849      1902

  Ireland             16633    9118     19430        China (Peoples     1476     1762     1495
                                                     Republic of)                         

  Canada              7371     10945    17556        Chile              599      687      1405

  Austria             11603    8920     12628        Portugal           1095     814      1332

  Zimbabwe            8686     7240     10573        Canada             431      496      1127

  Other               98478    86001    128345       Other              10229    8454     9611

  World               362258   330434   507553       World              55322    47524    70553

                                                                                          

  Source: United                                                                          
  Nations Statistics                                                                      
  Division                                                                                
  ------------------- -------- -------- -------- --- ------------------ -------- -------- --------

###### D. TOP AGRICULTURAL EXPORTS TO SOUTH AFRICA FROM THE WORLD

![](media/image3.wmf)

# **E. ECONOMIC SECTORS OF SOUTH AFRICA**

![](media/image4.wmf)

[^1]: "\*" Denotes highest export level since at least CY 1970.

    Note that the category "Other Consumer-Oriented Products" has grown
    significantly since 2001 and is expected to continue to increase in
    2005. The specific products in this category, which showed growth or
    were substantial US exports, are Other Food Preparations, Other
    Frozen Food Preparations, Carbonated Soft Drinks, Gelatin Food
    Preparations and Spices.

    []{.mark}

[^2]: Source: World Bank Group Data and Statistics, www.worldbank.org.

[^3]: Source: South Africa 2001 census,
    [www.statssa.gov.za](http://www.statssa.gov.za/). Middle class
    defined as employed South Africans, older than 15 years, who earn
    more than R3200 per month and includes their household dependants.
    According to census data, there were 3.8 people per average
    household in 2001 and 2,494,337 people earning an income greater
    than R3200.

[^4]: Source: World Bank Group Data and Statistics, www.worldbank.org.

[^5]: Source: National Department of Agriculture, "Economic Review of
    South African Agriculture 2003," www.nda.agric.za.

[^6]: Source: South Africa 2001 census, www.statssa.gov.za

[^7]: Down from \$1=R7.56 in 2003. Source: Federal Reserve Bank,
    www.federalreserve.gov

    **B. CONSUMER FOOD & EDIBLE FISHERY PRODUCT IMPORTS**

    South Africa ImportsImports from WorldImports from the U.S.U.S.
    Market Share %(In Millions of
    Dollars)200120022003200120022003200120022003BULK AGRICULTURAL
    TOTAL37659063024666161110 Wheat3288110373411831 Coarse
    Grains3613427038602822 Rice111118153151715131510 Soybeans3651110170
    Other Oilseeds968111022 Cotton475974101101 Tobacco536375411821
    Rubber & Allied Gums324965111200 Raw Coffee121317111000 Cocoa
    Beans468000000 Tea (Incl. Herb Tea)161616111000 Raw Beet & Cane
    Sugar1281112500 Pulses112242114559 Peanuts6213000000 Other Bulk
    Commodities558111000 INTERMEDIATE AGRICULTURAL
    TOTAL483524617384244887 Wheat Flour111010060 Soybean
    Meal899086111100 Soybean Oil264164111011 Vegetable Oils (Excl.
    Soybean Oil)132137173131021 Feeds & Fodders (Excl. Pet
    Foods)181824335181520 Live Animals6791111518 Hides &
    Skins271728111120 Animal Fats31612155312840 Planting
    Seeds1823227107394232 Sugars, Sweeteners, & Beverage
    Bases4813112161018 Essential Oils293033655201514 Other Intermediate
    Products129137152171518131112 CONSUMER-ORIENTED AGRICULTURAL
    TOTAL362330508282633886 Snack Foods (Excl. Nuts)271743111342
    Breakfast Cereals & Pancake Mix444111332 Red Meats,
    Fresh/Chilled/Frozen362744111121 Red Meats,
    Prepared/Preserved125111300 Poultry Meat373572114345 Dairy Products
    (Excl. Cheese)293233111000 Cheese8914111321 Eggs &
    Products112111253838 Fresh Fruit335111011 Fresh Vegetables1121001400
    Processed Fruit & Vegetables302542322984 Fruit & Vegetable
    Juices34121111162 Tree Nuts131216323211819 Wine & Beer81025111100
    Nursery Products & Cut Flowers446111441 Pet Foods (Dog & Cat
    Food)10812223192430 Other Consumer-Oriented
    Products146137173171618111210 FOREST PRODUCTS (EXCL. PULP &
    PAPER)129140178202523151713 Logs & Chips44711191511 Hardwood
    Lumber555663111211212118 Softwood and Treated Lumber6610111101 Panel
    Products (Incl. Plywood)3037477109222719 Other Value-Added Wood
    Products353751122454 FISH & SEAFOOD PRODUCTS554871112223
    Salmon435112272332 Surimi111000000 Crustaceans161415111010
    Groundfish & Flatfish459111010 Molluscs8713111001 Other Fishery
    Products231928111000 AGRICULTURAL PRODUCTS
    TOTAL12211445175490133138798AGRICULTURAL, FISH & FORESTRY
    TOTAL1405163320031101591638108 Source: FAS Global Agricultural Trade
    System using data from the United Nations Statistical Office