The future for South Africa’s maize producers appears grim. At an above-average yield (you’re not going to have a record yield every year, are you?) most producers need to earn R1 200/t to recover variable costs such as fertiliser, seed, pesticides and diesel. In order to recover fixed costs, such as salaries, Eskom, insurance, repairs and maintenance, any producer will need to make at least R1 500/t.
Should farmers want to make a “profit” – by which we mean a reasonable return on the capital invested in their enterprise, to which they are more than entitled considering all the hard work they’ve put into it – the price to the farmer would have to be above R1 800/t. At the time of writing the price to the farmer was about R900/t.
It’s estimated that, should prices stay at current levels, up to a third of the country’s grain farmers will be bankrupt by July next year. In my own district alone this means that within a year from now, if prices don’t improve drastically, 15 to 20 farmers – experienced farmers, young farmers with children; our own people! – will have no livelihood and no future. And then there’s the effect greater poverty and unemployment, along with a diminished number of farmers, will have on farm security and general crime in rural areas.
The productivity trap
We are being punished for our efficiency. The improvement in productivity and the success of the past couple of production seasons has caused the maize available to exceed the domestic demand.
According to Grain SA, about half the grain required for domestic consumption in 2011/12 is already in the silos. Exports to Africa have declined to the point where they will have no effect on the situation, and should we want to export maize competitively to the East, our price would have to drop by a further R150/t.
Our foreign competitors get subsidies to produce and survive at such low prices. We don’t. It’s also debatable whether our neglected infrastructure would be able to move such large volumes of maize, whatever the price.Grain SA is working hard to help us, but all of their initiatives are medium- to long-term. But the crisis is now and we must urgently find a solution!
South Africa’s farmers will commit financial suicide by planting maize to full capacity again this coming season. They’ll destroy any potential for profit for the past season, the 2010/11 season and even for the following year, because they would produce an unmanageable surplus that will keep prices at export parity.
What is to be done? In South Africa, various factors determine the producer price of maize. Farmers can do very little to influence or control most of these factors – except when it comes to the area they plant.
The area planted largely determines the supply and every farmer has 100% control here. If we limit supply this coming season, the price will quickly climb from export parity to import parity. This can mean an extra R900/t in the farmer’s pocket.This is not a new concept for us. We applied it in 2005/06 and managed to reduce the planted area from 2,8 million hectares to 1,6 million hectares. This brought supply and demand into balance and prices quickly rose to profitable levels. It’s not our aim to bring about shortages in the country. We’re simply trying to balance the market because we can’t export surpluses profitably.
Buy, don’t plant
The government is dragging its feet when it comes to plans to improve the demand for maize and is clearly not interested in doing anything to alleviate our situation. If we, our children and our employees don’t have any future, we have to provide that future for ourselves. This will help us with that.
What’s more, no maize farmer will have to sacrifice income potential or profit. All that’s needed is for all farmers to make a substantial adjustment to their thinking – and realise the problem can’t be solved by planting and harvesting more. If we produce too much maize again, the problem will grow bigger and last longer.
Instead, every farmer must cut production by at least 50%, and must now, at current prices – which are lower than production cost – buy that which they are not going to produce.We make a profit by selling maize for more than it costs to produce. If we can buy maize for less than it costs to produce, then it makes no sense to run production risks by planting and harvesting to obtain maize. If you usually produce 5 000t, consider buying 2 500t or more and scaling down your production accordingly. When you decide prices have risen enough, sell your maize.
This could happen as early as December this year! You won’t be losing income because you’ve cut back on your planting.If we succeed in balancing the 2010/11 season, it could mean three profitable seasons. If you stay in the market with the current crop and sell it at a better price, and also sell next season’s smaller crop at a good price together with the maize you bought at less than production cost, you’ll already have two good seasons.
Should the market have regained its balance by the end of the 2010/11 season, a grain farmer will be able to hedge the 2010/11 season’s crop at profitable price levels before planting.This opportunity offers the smaller farmer, as well as emerging farmers, the same benefits it offers the large-scale farmer. Hence, it should contribute much towards keeping small-scale farmers on their land.
How do we put this plan into practice? Some thoughts:
No farmer likes cutting back on production. As I’ve said, this will require a mindshift. Focus on the positive aspects and the benefits that will flow from the action and convince yourself of the merits of the matter. Such a wonderful opportunity doesn’t occur every year – it’s five years since we last had a chance to straighten out our industry. We must propagate the idea in earnest. We must convince as many maize farmers as possible, from all over the country, to avail themselves of this opportunity.
The more participants we have, the greater the benefits will be. One will never be able to get everyone to cooperate, but that’s not a prerequisite for success. All we need to do is get a critical number of farmers to do the right thing – as in 2005. Organisations such as Grain SA and the agricultural unions must work to get the message out there as effectively as possible.
Banks, agricultural businesses and other financiers must buy into the effort and be encouraged to offer their clients packages for the buying of maize or hedging themselves instead of planting.Input suppliers – and seed and fertiliser suppliers in particular – will have to be convinced to accept the long-term benefits of this one-time intervention, as their core business is going to suffer. However, nothing stands in the way of their also buying cheap maize.Individual farmers must devise a hedging strategy for themselves in consultation with a competent grain broker and/or their credit supplier.
The strategy will vary from one farmer to another, depending on risk attitude and profile as well as capital available.
Any South African farmer will agree that we are all very dependent on the grace of our Heavenly Father. As we all continually beg this grace from Him, I can’t believe that stronger farmers will not show grace towards weaker ones by changing strategy for one year in order to allow others an opportunity for financial recovery and survival.
We are not asking anyone to sacrifice income. We only ask that the income be earned in a different way – to the benefit of all the farmers in this country.E-mail Jozeph du Plessis at [email protected]. |fw