While the livestock industry’s foot-and-mouth disease crisis has attracted widespread attention, the wheat industry has been grappling with a less visible challenge of its own for more than a year. Growers say declining profitability is threatening domestic wheat production, employment, and the economic vitality of rural communities.
Richard Krige, chairperson of Grain SA and a grain farmer in the Southern Cape, said the deteriorating economics of wheat production are beginning to reshape the agricultural landscape.
In the Southern Cape, a region traditionally characterised by a stable agricultural property market with relatively little turnover, an increasing number of farms are being placed on the market.
“Farmers are exiting the industry either because they can no longer justify the combination of high risk and low returns, or because they have been forced out of business altogether,” Krige told Farmer’s Weekly.
According to him, the growing number of farms being offered for sale is increasing supply in the land market and placing downward pressure on property values. This, in turn, is eroding the capital base of producers who remain in the region. In addition, it could have knock-on effects for agricultural lending, as land values underpin much of the industry’s access to credit.
Crunching the numbers
One of the industry’s biggest challenges is that producers in the winter rainfall region, which accounts for about half of South Africa’s wheat production, have far fewer crop diversification options than grain farmers in summer rainfall areas, who can rotate with crops such as maize, soya bean, and sunflower.
While the situation is severe in the Southern Cape, Krige said conditions are even more challenging in the Western Cape’s Swartland.
“Both regions have their backs against the wall when it comes to planting options, but many Southern Cape producers have livestock enterprises that help diversify income streams, spread risk, and reduce financial pressure. We see far less of that in the Swartland,” he explained.
As a result, Swartland producers are often more exposed to the weak economics of wheat production, with fewer opportunities to offset losses through other farming activities.
Truter de Kock, a grain farmer near Malmesbury, confirmed this, saying he had heard of more than 10 farms near Moorreesburg being placed on the market since the start of the year.
“Many farmers in the Swartland have been farming at a loss for more than two years now. The economics simply no longer add up,” he said.
De Kock questioned the data used by the International Trade Administration Commission of South Africa (ITAC) in reaching its decision to reject Grain SA’s proposed changes to the wheat import tariff system.
By his calculations, Swartland producers would need to harvest at least 3,5t/ha to make a living at a Safex wheat price of R6 000/t, which is above the current trading price of approximately R5 800/t. Last season, average yields were closer to 3t/ha.
Even at yields of 3,5t/ha, a producer would only earn about R687/ha after input costs. On a typical 500ha Swartland farm, this would leave little room to absorb market and weather shocks, service debt, or invest in the technology and infrastructure needed to remain competitive.
De Kock said profitability prospects improve significantly when wheat prices exceed R8 000/t, but current market conditions leave little margin for sustainable farming.
Krige did not go into the numbers but confirmed that the situation was very similar for farmers in the Southern Cape.
A structural problem
According to De Kock, while the changes proposed by Grain SA would not have solved the industry’s immediate profitability challenges, they could have helped address some of the structural pressures that local wheat producers face.
“We supply the country with high-quality wheat at relatively low prices, yet we must compete against imported wheat that is often subsidised in its country of origin. The least government could do is provide better protection against these imports to safeguard local food security and preserve jobs,” he said.
De Kock argued that the debate should be viewed in terms of the trade-off between a marginal increase in food prices and the survival of a strategic agricultural industry.
According to his estimates, a R1 000/t increase in the wheat price would only add 59c to 60c to the cost of a loaf of bread, but it would inject around R1 billion into the local wheat industry.
“In the grand scheme of things, the cost to consumers would be relatively small, but the benefit to local wheat production, rural economies, and food security could be substantial,” he added.
The way forward
Krige said Grain SA will review the report on which ITAC based its decision to determine how it had reached its conclusion.
Depending on the findings, Grain SA will decide whether to appeal the decision or pursue further legal action.
He added that the organisation is also exploring other ways to address the structural challenges undermining the industry’s sustainability, including a review of the transport differential and its calculation, as well as the evaluation of different wheat cultivars to improve profitability.
