Farmers secrets to success

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Based on average figures, it seems as if South Africa’s farmers are doing well. While this is undoubtedly true for some farmers, I’m not sure it can be said for the majority. Just what is the true state of agriculture in South Africa? And why are some farmers able to say they have had “12 good years”? What are their secrets?

Firstly, some statistics from the department of agriculture: 

  • The output of the agriculture sector has grown by 11,8% a year from 1970.
  • Gross farm income increased from R5,8 billion in 1980/1981 to R178 billion in 2012/2013 – an annual growth of 11,2%.
  • Over the same period, nett farm income increased from almost R2 billion to R56,6 billion.
  • As can be seen, net farm income grew at a slightly lower rate than gross farm income. All the same, the growth in net farm income managed to, partially at least, keep up with inflation. 
  • The year to June 2013 was a favourable one for agriculture. Gross farm income increased by 10,1% from the previous year, while net farm income increased by 7,6%, mainly due to slightly lower production. 

Superficially, then, it seems as if farmers have done quite well since 1970 – on average.

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Total debt
But total farm debt, another indicator of farm profitability, increased by 10% a year, from R3,8 billion in 1980 to R79,3 billion in 2011. This on its own does not necessarily mean farmers are struggling – as long as the return on assets is higher than the cost of farm debt, farmers do better by borrowing money. Total farm debt equalled 14% of farm assets in 1980. By 2011, it was 32%. This means that farmers need a net farm income of R5,32 per R100 capital to serve this debt at 11% interest and a 10-year payback period, or a return on assets of 5,32%.

With net farm income currently at just over R56 billion, this equals a 20% return on total assets of R276,5 billion. On average, then, it seems as if farmers are able to repay debt and still obtain a relatively good return on their investment. However, as the income distribution in agriculture is very skewed, with the top 10% of farms probably responsible for more than 80% of total production, there is still a large majority of farmers who battle to make ends meet.

How do the top farmers do it?
Based on my personal observation of farmers over many years, here are the properties I feel that most successful farmers have in common:

  • Mixed farming – Farmers who do well seem to be able to run diverse farming enterprises as specialised entities, but they are also able to integrate these into a whole. A good example is combining crops and livestock.
  • Size does matter – Technology enables farmers to increase efficiency and limit cost. With the exception of GM seed, all new technology is scale-dependent, and smaller farmers are unable to afford the newer precision- farming technology. Large-scale enterprises are also able to use machinery more efficiently and productively.
  • Learning – Successful farmers are usually not too busy to attend farmers’ meetings and learn from experts. Their larger enterprises also enable them to afford consultants.
  • Families working together – Most of the larger enterprises in South Africa are family farms. While one frequently finds that family members on smaller farms are unable to work together, on the larger farms, families spend a lot of time and energy on determining each member’s position and role within the organisation. In most cases, external experts are used to develop family farming structures.

While these factors contribute to farming success, these farmers also have something else that’s important. They are positive about agriculture and about their future in agriculture. They have the ability to change a threat into an opportunity.
If land claims endangers property rights in South Africa, these farmers start farming operations in other countries in Africa and elsewhere. They also collect people around them who are as positive about agriculture as they are.

Securing the future
The world’s population is growing. At the same time, the middle class in developing countries is growing at a very fast rate. Food production will have to increase quickly to supply the growing population. We are ideally situated to supply Africa’s food demand in coming years. Farmers able to imitate or join the successful farmers are set to enjoy success.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not
reflect MPO policy.