To survive high input costs and price volatility in the current agricultural market farmers have to invest and expand their operations, Ernst Janovsky, head of Absa’s agribusiness division, told farmers at an Agri Lephalale meeting in Limpopo recently.
“We are going into an election year and there will be a lot of jostling for position, a lot of power play, more political unrest and more strikes,” said Janovsky. “Expect the minimum wage to be increased by between 12% and 15% and know that there will be a lot of price volatility in SA.” Janovsky added that the lack of import protection because of SA’s open border policy meant local farmers should not think of themselves as South African producers, but as world producers competing on a global market, which he said brings more price volatility.
International pressure Janovsky warned that some
South African farmers may fall out of the market as the sector is forced to realign itself to Europe and the US where most smaller farming operations were consolidated to achieve economies of scale to remain competitive. “In this is now happening 30 years after it happened there,” he said. H e said fewer farmers do not necessarily mean less production. “1980 had 120 000 farmers, but by 1995 that number had halved as the cost curve, accompanied by a drought in the early 1980s, took many farmers out of the sector,” said Janovsky. “Now we have just over 40 000 commercial farmers who are producing more produce per hectare on the same number of hectares than their counterparts 20 years before.”
He linked the increased production per hectare to improved plant cultivars available through biotechnology and the “use it or lose it” policy of the Department of Water Affairs and Forestry. “We are planting a lot more under irrigation and farmers are using biotechnology for better yield to remain profitable despite input costs,” he said. “Without the lease on life biotechnology offers, African agriculture would have been in the doldrums.” Janovsky said farmers are going to have to capitalise on technology more than ever to survive the next year. He stressed that to make up the 30% deficit between rising input costs and current commodity-price levels, farmers would have to be 30% more productive. “Farmers have to think carefully and make the right decisions to survive,” he said.
A good job against the odds
Janovsky added that with global food inflation at around 60%, SA farmers deserve a pat on the back for managing to produce sufficient food to keep local food inflation at around 15%. He said that despite political pressure and economic challenges SA producers are doing an outstanding job of keeping the nation fed and to an extent shielding from the global spike in food prices. Advising farmers on the global food market and its implications for local producers Janovsky said current high food prices could be traced back to the fall of the Berlin wall and the collapse of communism almost 20 years ago. “When the Soviet countries and the Chinese moved from communism to capitalism, those economies started growing and people began to accumulate wealth, and now want to eat meat instead of rice,” he explained.
“The fall of communism also saw the growth of other third world economies such as India and the countries of South America, and global demand on food increase to the current levels where supply is now under pressure. Combined with this, we have the threat of global warming, which has also shifted the focus to the carbon market and the need for biofuel.” e said the used to export between 140 million tons and 150 million tons of maize a year, but are now using that much themselves, for biofuel production, which has left a void in the global market forcing up the world price of maize. “This is good news for farmers in a country with an open border policy, such as SA, where farmers can be globally competitive,” he said.
“The world price affects them directly.” But he cautioned that SA’s open border policy meant exchange rates affect local farmers directly and because SA is currently importing more than it’s exporting, there will be a tendency for the rand to strengthen against the dollar. “While this is bad news if we want to export to the there is a silver lining,” he explained. “The dollar is weakening against the euro and we trust Tito Mboweni’s inflation targeting to keep the rand trading at around R7,50 to the dollar, which in turn is expected to trade at around US$2 to the euro, which is good news for producers exporting to Europe.
A consumer concern
Janovsky said local consumers are hurting, which is evident in their resistance to red meat prices on the shop shelves. While this means prices for weaners will remain at between R12/kg and R13/kg for the next two years he said there was still an opportunity to make money. “Prices will remain good, the maize price may go up to as much as R3 000/t and farmers are expected to produce more at a higher price with the help of technology. Now is the time to invest in agriculture as farmers who don’t invest and grow now, will not survive,” he concluded. – Jasper Raats
