Are input price increases fair?

‘The local fertiliser industry managed to limit price increases… Feed prices show a different trend.’

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‘The local fertiliser industry managed to limit price increases… Feed prices show a different trend.’

When food prices increased sharply in 2002, government appointed a food price monitoring committee under Prof Johan Kirsten. Since then the National Agricultural Marketing Council (NAMC) has taken over the job. does seem that monitoring prices has an inhibiting effect on random price increases.

In 2006, actions initiated by Deciduous Fruit Producers’ Trust CEO Anton Rabe and others resulted in a project by the NAMC to monitor input prices. We have not yet seen any reports, possibly as there are no organisations like AC Nielsen active in agricultural markets.
Although such a project provides many statistics, some are only of academic interest, such as the fact that product A’s price to the farmer increased by a certain percentage. Comparing the price of product A with the price of similar products on international markets and with the price of the ingredients would be far more useful.
Table 1 shows the change in selected input prices compared to international prices of the same or similar products. The price of local fertiliser increased by 10% to 11% while international prices for similar products increased by between 10% and 34%. It does seem as if the local fertiliser industry managed to limit price increases to the farmer.
Feed prices show a different trend. The price of dairy meal increased by 86% from October 2005 to 2006, as did the price of its major ingredients. The maize price increased by 63%, international soya oilcake by 33% and local soya seed by 13%.

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Clearly, in contrast to the fertiliser industry, the feed industry passed on all price increases to the farmer and even made extra profits. When maize prices decreased during 2005 to R600/ton, feed manufacturers told producers that they could not afford to drop prices as they had bought all their maize while prices were still high.

When prices started to increase in mid-2005, feed manufacturers told farmers that they had no stock and had to buy maize on the spot market. Only the very naïve will believe that feed manufacturers understand so little of Safex that they always manage to get it 100% wrong. If prices increase they have no stock, and if prices decrease they unfortunately bought maize when prices were still high!

A quick look at feed manufacturers’ financial results show that they performed exceptionally well during the past couple of years. In fact, most of them declared very good profits to their shareholders. This is in marked contrast to agriculture, where farmers’ income decreased sharply over the last year.

What can farmers do?
Farmers can do a lot to limit feed price increases. Feed manufacturers try to convince farmers that they sell unique products, but mostly the main difference between dairy meal and dairy meal B is the colour of the truck that delivers the meal. Farmers should compare prices and buy the lowest-priced product that conforms to basic quality standards.

Where farmers are too small to negotiate successfully with feed suppliers, they should get together and form a buying group. It is much easier for intensive livestock producers like dairy and poultry farmers to know if they are getting inferior feed than it is for extensive livestock producers. L ivestock producers must realise that Safex is not exclusively for the use of grain producers and speculators. Livestock producers had the opportunity to fix maize prices for 2007 at between R900 and R1 100/ton. The very few who did so will get the benefit of higher product prices coupled with a relatively low input price. Self-mixing remains a viable option for many farmers, especially those who can afford to invest in mixing equipment.

Farmers who mix their own rations must ensure that their rations are properly formulated and not try to go it alone – modern livestock rations are much too complicated. Fortunately there are a number of feed consultants to advise them.
Concentrates make up only a part of total rations fed to animals. This year roughage is also in short supply. At the moment lucerne is still available at relatively moderate prices, but this situation will change dramatically once winter comes.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed in this column are his own. |fw