The Department of Agriculture’s recently published Economic Review of South African Agriculture 2007/08 shows that farmers generally enjoyed good production and economic conditions during the 12 months to June 2008. F armers produced about 8,2% more than during 2006/07. Field crop production jumped by 29,3% and animal production increased slightly by 2,3%, mostly in poultry production. P roducer prices increased on average by 24,1% from 2006/07 to 2007/08. crop prices increased by an average of 41,2% with winter grain (+100,6%), oilseed (+79,9%) and hay prices (+59,5%) demonstrating the highest increases.
Animal product prices increased by 14,8%, with the price of milk (+41,3%) showing the largest increase. H igher production at favourable prices resulted in a sharp increase in the gross value of agricultural production – up 19,7% from R93 billion in the previous year to R113 billion in 2007/08. The main cause of the higher gross value was the sharp increase in crop production and crop prices. Animal products contributed about half (47,5%) of the total gross value followed by field crops (28,2%) and horticultural products (24,2%). Gross income followed the same trend as gross production value.
Income and expenditure
During the year, farmers earned a gross income of R110 billion. Gross income from field crops increased by 26,7%, from horticultural products by 16,8% and from livestock products by 18,3%. N et farm income increased to R37 billion, up 25,8% on 2006/07. Farmers paid R11 billion in salaries and R4 billion in interest. Expenditure on intermediate goods and services amounted to R57 billion up 20,2%. Expenditure on fertiliser and fuel increased by 84% and 34,8% respectively. Farmers spent 24,6% of their total expenditure on intermediate goods and services and farm feeds, 14,6% on fuel, 13,4% on fertiliser and 11% on maintenance and repairs.
The prices of farm requisites increased during the period by 21,6%, up from the previous year’s 7,1%. The price of fuel increased by 60,7% while the price of fertiliser increased by 46,8%. The ratio between the prices received by farmers for their products and prices paid for farm requisites is known as the terms of trade. O n an index basis with the year 2000 taken as base year and with terms of trade equal to one, the terms of trade strengthened slightly in favour of farmers by 1,9% from 1,04 in 2006/07 to 1,06 in 2007/08 .
In spite of the good performance, agriculture’s direct contribution to gross value added has decreased from the peak of 3,5% in 2002. However, it did improve from 2,3% in 2006 to a preliminary value of 3,2% in 2007. The value of capital assets in agriculture increased to R185 billion from R164 billion in 2006/07. Farm debt grew by 18,5% to R47 billion (25,3% of total assets).
The analysis While the figures look good superficially, detailed analysis shows that there are many major problems facing farmers. They earned a net farm income of R37 billion during 2007/08, and subtracting interest and capital repayment, farm profit is estimated at R26 billion. thus earned R15 per R100 total investment or a return on assets of 15%. However, this is much better than the previous year’s figure of 12,6%. arm debt remains a serious problem. High debt ratio are manageable with high returns and lower interest rates. Since July 2007 interest rates increased by 2,5 percentage points (up 19,2%).
The combination of an increase in interest rates and farm debt means that many farmers will find it difficult during the coming year to make ends meet. Wherever possible, farmers should use the higher summer and winter grain income wisely to limit the increase in debt. The prices of farm requisites increased at a very fast rate. Currently, many farmers say that their production costs are higher than the value of their land. This means that few farmers will be able to survive a crop failure. Therefore, they must calculate carefully before deciding on their crop production programmes for 2008 and 2009. The very high input prices means that many farmers may not be able to obtain production credit for the coming seasons.
Implications for farmers igher world prices are here to stay, albeit at slightly lower levels than during 2007. This means that given normal conditions, most farmers will be able to increase their gross farming income. owever, the very high input prices will make it difficult for farmers to make a profit, even at the more favourable product prices.
Farmers will have to plan carefully, use inputs wisely and where possible, reduce their dependence on purchased fertiliser, feed and chemicals. Biological farming methods can help farmers to achieve significant savings. Farmers who are too small to negotiate good input prices will do well to join forces with a few neighbours and do it together. Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. |fw
