Managing shortages

‘In their operational planning farmers must ensure that they secure the future supply of strategic requisites.’
Issue date 24 August 2007

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Last year South Africans faced shortages for the first time – the bottling companies ran out of gas and the supply of some brands of carbonated soft drinks ran out. Later the shortage of milk and dairy products resulted in empty dairy shelves in some supermarkets. Some time ago we also experienced fuel shortages and Western Cape farmers experienced huge losses due to power failures. Recently BP warned that we may experience fuel shortages, mainly as a result of the strike by refinery workers. However we did experience fuel shortages last year without any strikes, while world oil reserves increase every year. The problem lies with a supply infrastructure that did not keep pace with the growing SA economy. I f consumers cannot find their preferred brands, they can easily switch to a substitute, even though brandy with cream soda tastes different to brandy with cola! But if a farmer cannot get the needed farm requisites, it can result in huge losses. In their operational planning farmers must ensure they secure the future supply of strategic requisites.

Feed supplies T he Crop Estimate Committee’s sixth production estimate puts the 2007 maize crop at 6,9 million tons, 6% higher than the USDA estimate of 6,5 million tons (April 2007). From May to July only 4,8 million tons of maize were delivered to commercial structures. Chances are slim that the outstanding 1,5 million tons (20%+ of the estimated crop) are still in producers’ hands. Grain SA’s scenario shows expected imports of between 1,3 and 1,7 million tons to supply total local demand. Livestock farmers may be unable to get sufficient maize for their use. If the Crop Estimate Committee’s production estimate is correct, a lot of maize lies in farm silos. The current season’s soya bean crop is estimated at 218 000 tons, down nearly 50% on last year’s crop. will have to import more than a million tons of soya meal to supply local needs. Maize users will save a lot of money and trouble if they contact and enter into contracts with the maize producers who have maize available. As they can cut out transaction costs between them, the contract can be mutually beneficial. If the buyer does not have the necessary storage capacity, the seller can store the maize. he soya bean oilcake supply situation is as unsure. intensive livestock producers ensure their supply of oilcake, producers who use full-fat soya may have fewer problems. However it will be wise to secure supplies of all ingredients. World maize prices are expected to remain at current levels even if the expected higher US maize crop realises.

Higher world prices are expected in the case of both oilseed and protein sources. Farmers who use these products in rations can enter into supply contracts knowing that prices will probably increase in the coming year. Other inputs Milk producers have learned that standby electricity is a necessity. Unfortunately the scale of electricity use on many farms makes standby plants a very expensive proposition. However, farmers should try to get standby systems in place for when the electricity supply breaks down. f a processor agrees to supply a specific quantity of product to a supermarket and fails to do so, the supermarket buys the product from another supplier at any price and expects the defaulting supplier to fund the difference. F armers ought to be able to hold Eskom, who agreed to supply a specific quantity of electricity, responsible for the extra cost of insuring against their inability to fulfil their commitments. A few farmers have managed to become independent of commercial fuel supplies by making their own biodiesel. This will probably continue as the technology becomes more universally accepted. H owever, a local biofuels industry will remain a pipe-dream (and a fenced plot at Bothaville) unless government provides massive subsidies.

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The local fuel industry will not be able to cope with a sharp increase in fuel demand. Farmers will have to order supplies for the 2007 summer grain planting season well in advance. he fast growth of the economy in the last couple of years took place without a corresponding growth in production capacity and infrastructure. This has already resulted in shortages of many products. The difference between a good, an average and a failed crop frequently lies in the timeliness of operations. Farmers cannot wait for promised supplies while critical operations must take place. Farmers should ensure that they have access to all the feed, fuel and other farm requisites they need. Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed in this column are his own. |fw