There’s hope for farmers but expect tight margins, says think tank

The past two years of significant growth in profit margins in the primary agriculture industry are either closing rapidly or have already closed.
Issue date : 27 June 2008

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The past two years of significant growth in profit margins in the primary agriculture industry are either closing rapidly or have already closed. This is according to the Bureau for Food and Agricultural Policy (BFAP’s) 2008 annual baseline study released recently.

While it doesn’t suggest local agriculture is looking at a bleak future, it does imply that the environment and levels of doing business have shifted, creating a new equilibrium. “Revenue and costs of production are higher, more credit and collateral are required, the budget for small-scale farmer development and land reform has to be revised and the revenue targets for BEE implementation suddenly seem very low,” the report said.

The current hot topic of food security has necessitated the production of more affordable food. The impetus lies with industry and government, who should use the current threats to create jobs and growth, foster better utilisation of available land and address social and political instabilities in the region. “Farmers must be given the incentives they need for profitable production,” it suggested. The report used a baseline prediction for agricultural trends between 2008 and 2014, which provided an outlook for production, consumption, prices and trade. ith high prices attainable for sunflower, soya beans and wheat, it’s expected that fewer hectares will be devoted to maize in favour of these crops.

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Because of higher demand for maize, the report suggests that prices will increase next year until a surplus is produced and prices stabilise at export parity. And because of increased wheat plantings due to favourable world prices and shortages, the report said prices would drop in 2009 and 2010 due to lower world prices. “Meat consumption is expected to soften until 2010, when economic growth is projected to recover,” the report said, adding that prices would follow suit and increase, albeit marginally, next year and then start increasing at a faster rate from 2010 onwards.

It predicts beef and chicken production will expand by 8% and 14% respectively in 2014, while lamb and pork will remain constant. “Dairy prices are expected to remain strong due to a weakening exchange rate and local production being under pressure from high feed prices.” But consumption is still expected to remain 100 000t above production from 2008 to 2014, meaning SA will remain a net importer of dairy. I t’s predicted that the area planted to potatoes will decrease by 5 000ha in 2009, due to high input costs, thereby raising demand. “[Meanwhile] biofuel production is expected to commence in 2009, with sugarcane as the major feedstock,” said the report. “Sugar production is therefore expected to decline by 15% by 2014, mainly due to the diversion of 3,2 million tons of sugarcane to the production of ethanol.”

The report concluded “it’s evident that food prices are not expected to decrease over the short term” and that over the next two years, prices will increase at a slower rate of below 10%. “This has positive implications for the rate of inflation.” – David Steynberg For the full report, visit • farmer’s weekly | 27 June 2008 13

Disgraced agriculture head gets KZN tender

Dr Jabulani Mjwara, the ex-Head of the Department of Agriculture and Environmental Affairs in KwaZulu-Natal, has come under the spotlight again. This, after a company of which he’s a director recently became the preferred bidder in a R12,8 million Msunduzi Municipality tender to dredge the Camps Drift canal in Pietermaritzburg. O pposition parties and the public were outraged to hear that Mjwara’s company, Planet Waves, was the preferred bidder, despite current investigations into Mjwara’s financial maladministration during his tenure.

He resigned when it was discovered that over R100 million of taxpayers’ money had gone missing from his department’s coffers. This was before an internal disciplinary inquiry could be initiated. The money is still believed to be missing. Meanwhile, the Msunduzi Municipality’s procurement manager, Francis Grantham, has defended Planet Waves’ selection as preferred bidder in a large advert in The Witness newspaper. “[Regarding] Dr Mjwara’s … previous tenure as head of department … the municipality responds as follows. The municipality operates at a different sphere of government, with its own laws, rules, regulations and bylaws. All its citizens are invited to take part in the economic activities afforded them and unless a citizen has been found guilty and convicted in a court of law of an act or offence that precludes them from legally taking part in the tender procedures, council may not disbar them from tendering.” – Lloyd Phillips

Billions needed for power infrastructure

ixing Sa’s electricity GRID distribution will cost R26 billion after years of neglect. While the 1998 white paper on energy, which envisaged creating sustainable distribution entities fell by the wayside in favour of a 2006 Cabinet decision to create regional electricity distributors (Reds), an investment of R2 billion a year will be needed for future maintenance and refurbishment. This is according to Willie de Beer, chief operations officer of EDI Holdings.

Currently municipalities get some 20% of their monthly income from electricity distribution and while it seems the Reds system may be implemented after next year’s election, no legislation has been drafted to facilitate the transition. illem Doman, Democratic Alliance MP for Provincial and Local Government, explains the constitution would have to be amended because it’s currently the municipalities’ constitutional objective to supply electricity and maintain their networks. “But they’re prepared to hand over infrastructure and facilities to the Reds,” said Doman. – David Steynberg