The changing face of agriculture

Small farmers facing the price-cost squeeze need to join forces to survive.

A recent analysis by Dr Dirk Troskie of Elsenburg (Agriprobe, September 2011) provides insight into the changing structure of South African agriculture. The number of farming units in South Africa decreased from 57 980 in 1993 to 39 982 in 2009, a drop of 31%. During the same period, gross farm income grew by an average annual rate of 11,9%, from R19,6 billion to R119,3 billion.

As the number of farm units decreased, the average gross farm income increased from R340 000 to R2,99 million, a computed annual growth rate of 14,5% per year. In real, inflation adjusted terms, the average income increased by 7,4% per year. While these figures show that we have fewer but larger farming units, the actual effect is only visible from the change in income distribution. 

Farmers who earned more than R 4 million produced 53% of the total gross farm income. It is clear that those promoting the development of small-, micro- and medium-sized enterprises (SMMEs) will have to include the majority of farmers in their schemes.

Increased concentration
Worldwide, farms are growing bigger and farmer numbers are decreasing. There are many reasons for this:

  • The price of agricultural products increases at a slower rate than the price of farm requisites, and farmers need to produce more product units to earn the same net income. In periods of high input inflation, many smaller farmers find that they do not earn enough to pay for farm inputs and provide for themselves.
     
  • Farmers are forced to use new technology to increase production per unit of input. Biotechnology is largely scale-neutral. A farmer who plants 100ha to maize and one who plants 1 000ha to maize can both use GM seed to increase production. However, the development of information technology favours larger operations. Despite the potential for increased profitability, a small dairy farmer cannot afford the technology to manage dairy cows on an individual basis.
     
  • The third driver is the imbalance in marketing power. Inputs are supplied by large, powerful global companies. The smaller farmer is a price taker with little negotiating power. Bigger farmers often have the power to negotiate better deals. On the output side, they can get better prices as processors save on transaction costs when dealing with these farms.

The new Consumer Protection Act and the insistence of retailers on good farming practice and adherence to strict food safety protocols has resulted in added costs for producers. Small producers are unable to carry these costs which further limits the entry of small farms into food production.

The future?
The drivers of farm concentration are universal and non-reversible. However, this does not mean there is no place for smaller and even very small farming operations. The lot of subsistence farmers can be improved with a little government intervention. If a subsistence farmer with three cows sells 20l litres of milk a day to his neighbours at a price of R5,00/l, he earns an extra R100 a day or R3 000 a month which compares well with current minimum wages in agriculture.

In the rural areas there is little chance of competition from commercial processors. Commercial farming operations have long realised the benefit of working together, but it appears this idea has been slow to reach smaller farmers. The landscape for SA agriculture is changing quickly and it seems that Eckhart Kassier’s “Get big or get out” has gained momentum. Small farmers will have to get together with other producers.

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.