Farm debt in South Africa reached an estimated R88,7 billion at the end of 2012, up 11,9% on 2011. As a percentage of farm assets, farm debt increased steadily from 29% in 2008 to the current 34%. The 2012 increase took place despite a 13,9% increase in gross farm income caused by a combination of higher field, horticultural and livestock production and higher product prices.
Field crop prices increased by 20,9%, horticultural product prices increased by 6,6% and livestock product prices by 8,7%. The prices paid for farm requisites increased by 14,5% in 2012. The 51% minimum wage and the increases in other administered prices, as well as possible future increases in dollar-based requisite prices will probably result in even more pressure on the farmer’s bottom line.
The deterioration in the ratio between the prices farmers receive for their products and the prices they pay for their inputs is a trend evident both locally and internationally, and there are many reasons for this. A major one – which has been discussed in this column many times – is farmers losing the small amount of market power they possessed through the co-op system.
They can address this problem collectively, however, and there are many groups of farmers who have done just that.
But smaller individual farmers have very little market power and don’t gain much from time spent trying to improve their product prices. In many cases, this ‘rent-seeking behaviour’ is actually detrimental to the outlook for their individual farms.
What farmers can do?
Farm profit is the difference between gross farm income and total cost. The prices farmers receive for their products and the prices they pay for farm requisites are important elements of this equation. As are the quantity produced and quantity of inputs used. If you can increase the quantity produced with the same quantity of inputs, or produce the same quantity of product with less inputs, your net income will increase.
Modern technology provides ample opportunities for farmers to do this. Biotechnology, for instance, allows for improved efficiency in both livestock and crop production, while genetically modified maize and cotton seed have already resulted in higher production. A huge benefit of GM seed is that it’s a scale-neutral technology. The small farmer who plants 100ha of maize and the large operator can both afford to use this technology.
Genomic identification of superior animal breeding genetics, meanwhile, has already resulted in lower costs for animal breeders, while the development of precision farming methods in both livestock and crop production now enables farmers to manage production systems on a micro or individual animal level. As these systems develop, the cost of implementation will also decrease, and while precision farming methods are currently beyond the reach of small farmers, this may not remain so in future.
Information is power
Without stimulation from outside, a farming system will die in time. Farmers must ensure they keep up to date with new developments in their different farming enterprises. Study groups, farmers’ days and conferences are all sources of information. In SA we’re still fortunate that a lot of good advice is available for free from the technical experts at the various input suppliers. Use this information, but use it wisely.
In spite of possible higher food prices in future, the task of the farmer won’t get easier. Only those who ensure they remain up to date with new trends and strive to improve the efficiency of their farms will survive.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy. Contact Dr Coetzee at [email protected]. Please state ‘Global farming’ in the subject line of your email.