The location differential stays – and it’s good for farmers

The current location differential system for wheat and maize will be retained, since its removal might significantly hurt farmers by reducing their ability to obtain input finance. This was decided at the 2009 Grain SA congress.
Former Grain SA chairperson and a current delegate from Viljoenskroon Japie Grobler recommended the system be maintained and accepted as a working system.
“This structure gives the industry a point of reference,” he said. “Let’s keep it intact and find a way to improve it. I do, however, plead for improved market information and recommend Grain SA supply members with information pertaining to bids and offers in the grain industry on a daily basis.”
The decision to maintain the location differential structure follows a report by Prof Matthew C Roberts, associate professor at the Department of Agriculture at Ohio State University, after a detailed analysis of the location differential system in cooperation with the South African National Marketing Council, following a request by Grain SA. The report states the system must be retained in it’s current form.
Roberts argued the opposition to the location differential system is based on either a faulty understanding of the economics of commodity markets, or a lack of transparency and market power in the South African cash-grain markets.
Roberts’ report said location differentials are relatively common in commodity futures exchanges. He also recommended soya futures be added to the location differential system.
However, lack of transparency and competition for cash grains are major flaws. Existing infrastructure means competition will probably remain limited. An electronic market, especially one backed by the Johannesburg Stock Exchange, could help improve transparency.
Grobler agreed and requested Grain SA provide ongoing, credible information to empower members to take informed decisions and preserve the integrity of the grain industry.
Grain SA chairperson Neels Ferreira wrapped up the debate. “The biggest challenge is to create a competitive market through providing information and increasing transparency,” explained Ferreira. “It’s critical even if we have to use statutory measures to ensure transparency. We don’t ask for preferential treatment, we just want to compete on an even playing field.”