‘The question no longer is whether a farmer should adopt biological farming methods, but rather if a farmer can afford not to do it.’
The sharp increase in agricultural product prices since 2006 has been mainly demand-driven. Input prices followed the sharp increase in the price of other commodities like oil and chemicals, and South African farmers were hard-hit by the sharp increase in fuel and fertiliser prices.
The Competition Commission recently announced it had taken steps against Sasol for alleged uncompetitive behaviour and TAU SA contracted well-known agricultural economist Philip Theunissen to investigate the fertiliser supply chain in South Africa.
The Maize Trust didn’t approve an application for funding this, as it felt another investigation wouldn’t add anything to what’s already known. However, local fertiliser manufacturer Profert came to its rescue with a R100 000 sponsorship.
What happened to fertiliser prices?
International fertiliser prices have increased sharply since 2006. The price of urea increased by 471% to US 206/t (R12 122/t) in April 2008, while diammonium phosphate (DAP) increased by 210% to US9/t (R8 333/t) in August 2008.
South African fertiliser prices followed this trend. The local price of urea increased by 294% to R9 439/t in September 2008 and DAP by 596% to R16 395/t in July 2008.
The slowdown in the international economy and lower product prices has resulted in a sharp decrease in international fertiliser prices. Farmers cut down on their fertiliser purchases, resulting in lower demand. International fertiliser prices decreased in line with the price of other commodities.
In January 2009, urea sold for US5/t (R3 568/t) and DAP for US3/t (R2 543/t) on international markets. Freight costs also decreased as the demand for freight space decreased. The Baltic Dry Index, an index of dry bulk freight tariffs, dropped from 11 500 points in mid-2008 to 650 in December 2008. It has since increased to 1 200 but is way below its former peak. South African urea sold for an average R5 444/t in February 2009 and monoammonium phosphate (MAP) for R6 632/t, down 42% and 51% on 2008 peak price levels.
Exchange rates also play a role in determining South African product prices. In rand terms, the international price of urea and DAP decreased by 36% and 61% respectively over the same period. While local prices followed international prices in the downward trend since 2008, this doesn’t mean local prices are fair. Phosphate is mined and processed by Foskor and was sold to local fertiliser manufacturers at what Profert described as very discriminating prices. While rough phosphate was sold at export parity prices, MAP and DAP were sold at import parity price plus a premium. Intervention by the Competition Commission resulted in a change to an export parity pricing basis by Foskor.
Farmers can rest assured the pricing policies of the fertiliser manufacturers are constantly scrutinised. In this regard, Grain SA’s economists play a major role and other industry organisations owe them gratitude for the job they do.
Officially, the National Agricultural Marketing Council (NAMC) also monitors input prices and is able to signal a red light if needed.
What should individual farmers do?
Oligopolistic companies like our fertiliser manufacturers try to limit competition through their branding actions. They try to convince farmers their products and services are better than others. Farmers mustn’t get taken in by clever advertising. Fertiliser company products are all similar. Shop around and only buy at the best price. Getting together with your neighbours to buy collectively helps.
It always pays farmers to buy fertiliser early in the season. Companies don’t want to end the financial year with large unsold stock.
As international prices are still in a downward trend, companies are afraid of being caught with stock bought at higher prices and now valued at lower ones. It’s a buyer’s market – use it to push prices down. Chemical fertilisers are not the only way to maintain and improve soil fertility. Farmers who adopt and apply biological farming methods save hugely on fertiliser costs and see an improvement in yield.
And biological farming doesn’t mean the exclusion of chemical fertiliser, but the use of compost and manure as well.
The question no longer is whether a farmer should adopt biological farming methods, but rather if a farmer can afford not to do it. Various collective actions will ensure fertiliser companies don’t contravene competition laws. However, this doesn’t ensure individual farmers get fertiliser at fair prices. Their own actions will determine that.
Farmers should spend less time worrying about the fairness or unfairness of fertiliser prices and more time on negotiating better prices and limiting their dependence on bought-in fertiliser. Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. |fw
