Farmers worldwide are navigating challenges like increased input prices, extreme weather events, and commodity price volatility.

“Given the current macro-economic environment, the priority for the world’s farmers today is improving productivity, whether through agricultural technologies for improving operations, biological products, or sustainable practices,” consulting firm McKinsey & Company’s Global Farmer Insights 2024 report, released on 16 October, reads.

In an article published in the magazine NWK Arena, Rinus de Bruin, agronomist at agribusiness NWK in North West, says that while higher input costs pose a challenge to all grain producers in South Africa, it is particularly so in the case of smaller commercial farmers.

These producers don’t always have the necessary financial means to purchase inputs timeously and do not enjoy the benefits of economies of scale, he explains.

“The fact that they are dependent on pushing up yields in an effort to retain sustainability and for the farming to remain profitable markedly exposes them to risk and puts their businesses under severe financial pressure. Therefore, risk management is becoming an increasingly valuable tool in terms of profitable grain production,” he adds.

Input market movements are testament to the fact that the prices of various inputs, such as fertiliser and fuel, usually tend to move upwards as the summer planting season approaches.

There is a growing need for more inputs that is often driven by grain cultivation on marginal soil with a below-average potential, which makes it hard to realise the yields needed to ensure acceptable profit margins. Coupled with weather phenomena like El Niño and La Niña, risk management and mitigation have become invaluable for grain producers.

Fertiliser

Although fertiliser prices may vary greatly, prices have risen over the long term, adding to a marked increase in production expenditure. For instance, input prices increased significantly between July 2023 and July 2024.

The prices of KAN and urea went up by 5,8% each and MAP by 27,4% over the period (see Graph 1). These kind of increases add to the financial challenges that farmers face when aiming to produce higher yields in order to attain sufficient profits.

Fuel prices

“Diesel continues to play a major role in most grain production businesses, especially on farms where conventional production is practised and where making a switch to minimum or no-till systems is not an option.

Switching to minimum and no-till systems is expensive and requires large capital layouts. Furthermore, in areas with deep, sandy soils it is not always possible to implement these systems.

“Diesel prices did not increase much over a year-on-year period, with an increase of 18,67% from a diesel price of R19,49 in July 2023 to R23,13 in July 2024 (see Graph 2), but it still formed one of the major input expenses. In addition, repair and maintenance costs of equipment represents, on average, 80% of fuel costs,” explains De Bruin.

Labour

De Bruin points out the role of labour as an input and says the costs thereof markedly add to the South African agriculture sector’s overall input costs. Most farmers have already scaled back on labour because of the ongoing increases in labour costs and strict labour legislation.

The minimum wage for agricultural labourers rose by 8,5% between 2019 and 2024 (see Graph 3), putting further pressure on farmers to manage labour costs.

Risk management

There are other factors that must also be taken into account in terms of risk management, such as climatic conditions that cause price fluctuations. Prices usually to go up in dry seasons and tend to weaken during production seasons when rainfall is high.

In a dry season, the potential for losses remains high for producers farming on medium- to low-potential soils, even when prices are good. On the other hand, grain prices usually tend to decrease in seasons of high rainfall, again negatively impacting profit margins on low- to medium-low soils.

“It therefore makes economic sense to avoid the high costs of production on medium- and low-potential soils and rather invest the money saved in this way to improve the medium-high and high-potential soils.

“It makes sense to rather use lower-potential soils to establish good-quality pasture with an increased carrying capacity to accommodate a livestock component on low-potential soils,” says De Bruin.

Soil potential

De Bruin urges farmers to determine what their farms’ soil potential is, adding that soil needs to be fertilised according to its potential, taking factors like average rainfall and long-term average yield into account.

“By calculating the general input cost per hectare, soil potential, average rainfall, as well as long-term average yield, farmers can determine whether it will make financial sense to plant a grain field for crop production or not. The vigour of the soil is often a determining factor of success or failure. Cultivating grains on fewer higher-margin hectares that are managed efficiently is much better than planting on more hectares with lower soil potential. The former would obviously lower total input costs and prevent unnecessary risk,” explains De Bruin.

According to him, selecting the correct crops is of the essence. For instance, should weather expectations indicate below-average rainfall, it would be a good idea for producers in North West to consider crops suited to drier conditions, such as sunflower, for the majority of the hectares available for planting.

Soil knowledge is vital and crop-limiting factors like nutrient element deficiency or low pH should be addressed as soon as possible.

Optimal management

“Every section of a farm should be managed optimally. This includes diversification with a livestock component that can act as a buffer in case of crop failure or below-average yields. Knowledge of the state of the soil makes it possible to take remedial action and apply variable rate application. Variable-rate application equipment and the application of new technology are valuable tools in the mitigation of risk, since they give producers a clear picture of the condition of their lands,” says De Bruin.

Soya bean is known to contribute to soil nitrogen reserves when grown in rotation with other high-value crops like maize. De Bruin adds that, if possible, farmers should investigate the merits of using soya bean in a crop rotation system to reduce input costs.
Crop rotation is imperative to prevent diseases and imbalances in the soil.

It is essential for farmers to be cognisant of the fact that input price increases need to be reflected in their returns on investment. This means that returns must also increase by the same percentage as the input costs to realise the same profit margin achieved during the previous year.

Email Rinus de Bruin at [email protected].