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April 27, 2008

Rising input costs, narrowing profit margins force SA farmers to grow less despite high demand

South Africa has to import more and more food at escalating prices because local farmers are not growing enough. Chris Barron asked the president of farmers union AgriSA, Lourie Bosman ...

Why are our farmers not growing more?

We can grow more at the moment because of the availability of cultivated land, but there are definitely some problems around production. Remember, we can only produce what is demanded by the market, at a profit. If we cannot make a profit then obviously farmers cannot produce.

Surely with the boom in prices they must be making a profit now?

Two years ago most of the growing industries turned around after a very bad downturn from 2001. This year’s crop will definitely benefit from the rising commodity prices. But because of increased input costs, it will be a different scenario with the next crop.

Such as?

Most of our input costs have increased tremendously since the present crop was planted. Fertiliser has gone up from April last year by 123% and we expect more increases. Diesel prices have more than doubled from the previous crop. To try to put a crop in at R10 ($1.30) a litre is going to be very, very difficult.

Even with these increases, what kind of farmer couldn’t turn a profit with present prices?

Farmers’ share in the consumer price is very small, and I don’t think people understand that. Most of that price gets added in along the value chain. On average, the farmer gets between 24% and 30% of the final price. There’s been a lot of talk about bread lately. The farmers’ share in the bread price is only 24%. And there are only two processes in between, and that is the milling side and the bakery side. So we are also quite worried about the situation.

Is this why farmers are not producing enough? High input costs and insufficient profit?

We are a net exporter of food. We are only one of about seven countries in the world that is a net exporter.

But the gap between exports and imports is closing, isn’t it?

It reduced to almost zero at the end of 2007. A little bit less imports than exports, but the gap has closed tremendously.

Why?

First of all, although we’ve called for tariff protection against cheap imports of low-graded stuff into the country, it has never been implemented. The result is that farmers have reduced their plantings and reduced production.

Because they’re up against farmers abroad who are being subsidised?

Absolutely. Producing at a much lower cost than we can because we don’t get any support from government, as you well know. So we’re on a very unlevel playing field. If we get protection for some of the commodities which are necessary for South Africa by an import tariff, not support for the farmers but just protecting the industry like we can do under WTO (World Trade Organisation) agreements and rules, we could then produce sufficient for local consumption. But if that does not happen then farmers make a loss and stop producing.

Wouldn’t consumers have to pay more if the government protected you against cheap imports?

No, it’s the other way round. Any tax government places at our borders on cheap stuff coming in goes to the government. They can then use it to alleviate some foodstuff prices.

No cheap imports means consumers pay more, surely?

For a specific commodity at a specific time. But what happens with the wheat price when international stocks drop as we’re seeing now because of huge demand by developing countries? Then we have to import at a very, very high price. That is why the bread price has gone up so much.

What would stop local farmers selling their stuff on the international market?

We’re very far from those markets and transportation costs are very high. We cannot be competitive in the international market.

Cosatu is calling for food prices to be capped. That would have a disastrous effect. It would be pushed down to the producer, the farmer, and production would stop.

What has the impact of land reform been?That is a problem that we have to face really seriously and squarely. About 90% of farms that have been transferred to new owners who are not trained and don’t have the capacity, the implements, the money to put crops in ... we’ve seen a tremendous drop in production on those farms. If we keep transferring high-productive land which is not kept in production then the problem will increase. We’re already running short of local supply of foods. Food levels in the country will drop even more.

The Times SA

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