W Cape wheat farmers dispute transport differential

Western Cape producers have called on Grain to ask the Competition Commission to investigate the controversial transport differential and what they call “inexplicable” market trends.
Issue date: 23 February 2007

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Many farmers in the province have been dissatisfied with the transport differential – the cost of transporting grain from any part of the country to Randfontein, which is deducted from the price attained on Safex – ever since this pricing system was introduced. Farmers argue that less than 50% of the 750 000 tons of wheat produced annually in the Western Cape is exported to other provinces, yet they still need to pay the transport differential on all wheat produced here.

At a recent Grain regional meeting, Swartland farmer Alwyn Dippenaar said it could cost a wheat buyer only R15/t to transport wheat across the road to a milling point, while a farmer would have to pay a transport tariff of about R310/t. Grain requested the removal of the differential in July last year, but the JSE Agricultural Products Advisory Committee decided to maintain the system, as the majority of trading members felt it worked effectively and added transparency to the market.

However, Western Cape farmers maintain the differential is one of the only factors that can be addressed to enhance their sustainability. Dippenaar said the decision was made by people who would not be involved in the industry if it were not for their involvement with Safex, and not by farmers who are directly influenced by this system. Grain vice-president Louw Steytler said the organisation’s members were divided over whether to scrap the differential as some did not see the benefit of its removal.

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“It is true that the transport differential adds transparency to the market and farmers would have to negotiate their own transport prices if the location differential is removed,” he explained. nother grievance is that farmers have to foot the bill for the differential, while other parties receive the tax certificate. At the meeting producers also complained that prices for wheat follow Argentinian prices, despite it being of a higher quality. Grain general manager John Purchase said it is “mind-boggling” that wheat prices are trading below import parity even though the country experiences a net shortage. But he said hard evidence would be required if grain farmers want to seek recourse through the Competition Commission.

The National Chamber of Millers said it would welcome such an investigation: “As an organisation we encourage all our members to comply with the country’s rules and regulations and we are against collusion. Hence we would give our full cooperation to the Competition Commission if such an investigation should be launched,” said the organisation’s executive director Jannie de Villiers. However, Grain regional chairperson Andries Theron said the problem does not lie with the millers. “The problem lies rather with the traders who are working between the producers and millers. As an industry we can no longer afford to sustain these role-players.” Theron said the only way farmers will be able to increase prices is by restructuring production so that they can regain ownership of their product for as long as possible in the supply chain. – Glenneis Erasmus