Agribusiness Suidwes achieved excellent financial results three years in a row with a nett profit increase of 68% for the 2007/08 financial year. Fanie van Zyl, Suidwes board chairperson, ascribes this to ruthlessly pursuing a return on shareholders’ funds and using as much of their own capital reserves as possible. Annelie Coleman spoke to him at the Suidwes headquarters in Leeudoringstad, North West, on the eve of the company’s 100 birthday.
- Suidwes achieved great financial results three years in a row.Suidwes has balance factors in place, such as advanced technology, to counteract high production costs.
- Switching from a co-op to a agribusiness did not adversely affect Suidwes.
How did Suidwes start and how did it survive?
Suidwes started as a co-op in 1909. The members realised a need for an input supplier with combined buying power. So the co-op started handling and storing grain and oilseeds for producers. For almost 60 years Suidwes acted as an agent for agricultural marketing boards. Suidwes kept doing business through drought, both world wars and the Great Depression. Our mainstay has been the loyal support of our members and shareholders, as well as our disciplined business philosophy and excellent relationships with our stakeholders.
How did you survive the hostile take-over bid of Senwes at the end of last year and how did it affect the business?
Firstly, our shareholders rejected the offer. Secondly, they didn’t want to lose Suidwes, what it stands for and what it had to offer. The strong reaction from our shareholders against the takeover bid was exciting and reassuring. It unleashed tremendous energy among members of staff as well as shareholders and our clients.
We gained incredible goodwill during that upheaval.
Suidwes achieved excellent financial results three years in a row with a nett profit increase of 68% for the 2007/08 financial year. What is the company’s financial strategy?
We believe in sourcing market-related or better working capital, using as much of our own capital resources as possible and ruthlessly pursuing a market-related return on our shareholders’ funds. Agribusinesses are relationship-driven, and we believe every stakeholder is a contributor to our vision as shareholders, customers and suppliers. Mutual trust, respect, transparency and accountability are the cornerstones of this philosophy.
What impact did the ever-increasing input costs of summer grain production have on your business?
Amidst all of this, Suidwes has achieved excellent financial results three years in a row. We have “balancing factors” in place, such as massive technological advances enabling producers to increase yield, efficiency and productivity. Supporting mixed farming with a significant livestock factor is an important part of what we do. Agribusinesses must continue to diversify and develop income streams other than agriculture.
The crude oil price has come down significantly and will also lead to a reduction in input costs. When can farmers expect input prices to come down?
There is always a time lag between price changes of a primary raw material such as oil and the price of products derived from it such as fertiliser. Most fertiliser stocks needed for this production season were already imported and paid for before oil prices came down. So, we will not see price changes in the immediate future.
Nevertheless, we may see lower prices when the next wheat crop is planted. Other inputs such as diesel have shorter time lags and we are already experiencing price decreases.
How will your clients be affected by input costs?
Our clients will face problems if increasing input costs are accompanied by unfavourable climatic conditions and low producer prices. There will, unfortunately, be casualties, especially among farmers who carry large debt, who farm on marginal soil and who don’t advance technologically.
Do you expect a decrease in grain production?
I really don’t believe there will be a marked decrease in our area, provided we get enough rain. A positive side-effect of current recessionary global economic conditions could be lower input costs due to deflation as the international crisis deepens. It could provide us with some breathing space in the short term.
What are the prospects for agribusiness in general for the short and medium term?
The prospects are good, provided businesses are prepared to adapt to changing scenarios. They must also have the will and drive to be enthusiastic roleplayers in our country’s agricultural economy. It’s a fact that businesses operate in cycles. A downward cycle is being experienced globally and South Africa won’t escape its effects and consequences. Agribusinesses will have to survive by driving down costs with increased efficiency. It’s important to maintain high levels of innovation and creativity in providing products and services.
Do you agree that agribusinesses should contribute to food security in South Africa?
I agree, it should be their main focus. They should become more involved in technological advances, products and services and engage with other roleplayers in the mainstream economy. These businesses should be proudly South African in all their endeavours. They should cultivate a positive and infectious spirit, create a win-win culture for our agricultural sector and the country as a whole.
And what role should government play in this?
Commercial farming’s contribution to food security will be greatly enhanced by better support from government. Our farmers want to produce and be active participants in a growing agricultural industry, but ongoing and mostly unfounded criticism of commercial farmers isn’t conducive to the development of the industry.
Coupled with unrealistic land reform efforts, we will struggle to become roleplayers in the global economy, despite the fact that we have the will and ability.
How can agribusinesses contribute to the successful development of black farmers?
Agribusiness can be a valuable link in the supply chain to emerging farmers and a vital lynchpin in marketing their produce, even if it is the only means of facilitating access to markets. We can also provide support services on a commercial basis and be an instrument for government to channel funds and finance to emerging farmers. Although we have support systems to render such services, we can’t replace the role and responsibility of government. We can be a valuable partner to government, but authorities will have to accept their duty and responsibility to our emerging farmer colleagues. These farmers need support systems to be put in place. They can’t be left in the lurch any longer.
Is Suidwes BEE compliant?
We are not BEE compliant yet, but we’ve made good progress in social-responsibility projects and skills development. We support school and community projects and have donated redundant infrastructure to community organisations involved with HIV/Aids programmes. But we’re struggling to engage black shareholders as co-owners. Our shareholders have laid the table for BEE shareholding, but despite major efforts, we have not managed to make meaningful progress. We’ve tried our best so far, but it’s an uphill battle. We are addressing the situation and should be in a position to make an announcement soon.
Very few agricultural co-ops remain in South Africa and most of them have converted to agribusinesses. Was the swing to agribusinesses the right decision?
I have to answer yes and no. I believe, in general, that the public company business lends itself more to modern and robust business environments, while cooperative business are more structured and controlled.
None of these are bad or wrong, but it depends on the vision of members and owners. Internationally there are large and successful co-ops, but also dismal failures.
And how did this shift affect farmers?
The shift to agribusinesses benefits farmers because the confines and rules of conventional co-ops are done away with. Some farmers will testify that they didn’t even notice the change from one form of business to another. |fw
