Categories: South Africa

BFAP predicts lower profit margins for farmers

Over the next 10 to 20 years farmers can expect narrower profit margins compared to the past five years, with fierce competition among local and international players.

This was according to the agricultural baseline outlook for 2013 to 2022 of the Bureau for Food and Agricultural Policy (BFAP), which was compiled under the leadership of Prof. Ferdinand Meyer of the University of Pretoria, and released in Cape Town today.

According to the report, after three decades of stagnation, the world saw a sharp increase in commodity prices in 2006. This was fuelled mainly by the introduction of the US biofuels industry, as well as growing consumer demand due, firstly, to astounding growth in the Chinese economy and, more recently, growth across the African continent.

The report suggested that, despite a downturn in the rate of increase in biofuel demand and consumer demand in China, it was unlikely commodity markets would, over the baseline period, plummet to levels seen before the commodity markets’ spike in 2006. However commodity prices were also unlikely to continue on the same growth trajectory.

“Over the baseline period commodity prices are expected to remain at a relative high plateau but the percentages increase in these prices is anticipated to decline significantly,” said the report.

As a result, the report forecast that the real growth rate of net farm income would decline over the baseline period.

“Whereas growth rates of 17% and 11% were posted in 2011 and 2012 respectively, real net farming income is expected to increase by an annual average of only 2,3% over the baseline period,” said the report.

The main driver of net farming income in South Africa was expected to come from animal products, with an average growth rate of 2,9%/year over the next 10 to 20 years. Meanwhile, the total demand for meat and dairy products was estimated to grow by 3,5% per year.

The horticultural industry was expected to grow by 3% per year due to higher prices in export markets.

The report said farmers will have to manage lower profit margins by increasing the rate of intensification in production and by adopting new technologies and sustainable farming methods that will help boost competitiveness. #BFAP2013

Follow Denene on @agri_erasmus

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