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September 19, 2010

Bumper harvest-caused plunge in prices could spell ruin for South African maize farmers

by Penwell Dlamini

South African maize farmers face a classic catch-22 situation because of bumper harvests, low prices globally and a partial solution to their dilemma that contravenes South African competition legislation, an expert says.

Willie du Plessis, director of Standard Bank agricultural banking, added his voice to warnings by GrainSA that up to 30percent of all maize farmers could face ruin before the end of the year. He said the largest maize harvest in South Africa to date - a crop that is expected to exceed 13million tons - will have major short-term negative consequences for the industry.

"This harvest follows two other bumper harvests and will result in increasing local surpluses of maize that will further decrease prices," Du Plessis said. "Export opportunities have been limited as international maize stocks have built up to where further inputs are not required."

He said the strengthening of the rand against the dollar added cost pressures since it makes South African exports more expensive.

''A potential solution by GrainSA to establish a maize export pool to relieve the present supply pressures and bolster local prices had run afoul of the country's anti-collusion competition legislation. The Competition Commission recently confirmed that the scheme would run counter to the provisions of the Competition Act. To meet the urgent needs of maize farmers, the commission suggested that an application for exemption from some sections of the Act be submitted," Du Plessis. said.

"GrainSA has decided to prepare an application for exemption, but the time this will take will probably make the export pool unviable for the current marketing season. It is critical that in this environment producers carefully examine their gross margins and determine break-even prices that must be achieved to cover expenses," he said

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