Farmers struggling amid food price increases

8th March 2013

By: Yolandi Booyens

  

Font size: - +

Food prices in South Africa are drastically increasing, owing to continual electricity and fuel price hikes, as well as wage increases, which impact directly on the country’s food production sector, states Transvaal Agricultural Union South Africa (TAU SA) assistant GM Chris van Zyl.

The agriculture sector is a national strategic asset, yet it faces many challenges amid little support from government, he points out, adding that it is costly to farm in South Africa.

“While food wholesalers, processors and retailers can add energy and fuel increases to the price of their products, farmers cannot afford to do the same, as this could drive away wholesalers. The profitability and sustainability of commercial agriculture are under severe pressure.”

The National Energy Regulator of South Africa (Nersa) approved double-digit tariff increases for State-owned power utility Eskom for the 2009/10 to 2012/13 financial years, which resulted in increased power tariffs of more than 60c/kWh from 25c/kWh in 2008.

Under the second multiyear price deter- mination (MYPD2), Nersa approved price increases of 25% for April 1, 2010, to March 31, 2013. In March last year, however, Nersa lowered the electricity tariff hike for the 2012/13 financial year to 16% from the 25.9% it had previously approved. This will come into effect on March 9.

Eskom confirmed in June last year that its third MYPD application to Nersa would be for a five-year period, rather than the three-year horizon that prevailed during the first two MYPD periods.

Meanwhile, fewer young people are considering farming as a career, owing to the increasing labour challenges the sector is facing and will likely continue to face. The average age of practising farmers is about 60. “Therefore, it is questionable whether youngsters have any faith and optimism regarding farming in South Africa,” Van Zyl states.

Violent labour strikes spread across the Western Cape in November 2012, with more strikes likely to follow this year, he adds. Farm workers demanded a minimum wage of R150 a day, which was more than double the prevailing minimum wage.

Labour Minister Mildred Oliphant announced last month, however, that the new minimum wage for farm workers would be increased to R105 a day. The new rate, R36 more than the prevailing minimum wage of R69 a day, came into effect on March 1.

A minimum wage cannot apply across the board, as different sectors of farming use varying numbers of workers for different activities, Van Zyl notes, adding that across-the-board increases in the rate at which labour is reimbursed will result in farmers reducing their labour forces, as the profit- ability margin of farming is narrow.

“Employers will have no option but to reduce their labour force to meet the increase in labour costs. Therefore, an increase in the unemployment rate and a subsequent increase in government grants can be expected.”

As labour costs increase, so will the focus on productivity. “South Africa’s productivity, irrespective of minimum wage, is not high. This creates increased employment of foreign nationals seeking to make a living in South Africa and will lead to xenophobic conflicts,” Van Zyl highlights.

These foreigners accept lower wages, as the minimum wages in neighbouring countries are much lower than what South Africa offers.

He further notes that South Africa boasts good knowledge of and expertise in commercial production; therefore, these skills are in high demand worldwide. “Many farmers have settled overseas in countries such as Canada and some have been employed at large agricultural developments in the Middle East and Mozambique. Nigeria is also actively seeking South African expertise to increase its commercial production of produce.”

In addition, South Africa is susceptible to drought and global warming, which is affecting local food production. Further, the country and the agriculture sector are also affected by global climate events. For example, Van Zyl highlights the US, which experienced severe drought two years ago. This resulted in a maize shortage, affecting the global pattern of food production.

Crime is also a major problem for farmers. “The fact that violent crimes on farms remain at high levels is a major concern from a per capita point of view,” Van Zyl notes.

A total of 51 farmers were murdered in 2012, compared with 52 murders in 2011. “While that might not seem like much, there are only 35 000 commercial farmers in South Africa,” Van Zyl points out.

South African Institute for Security Studies senior researcher Dr Johann Burger calculated that, using an internationally applied ratio to determine the crime level for every 100 000 people of the population, there is a 1 in 99 murder rate for farmers. Compara- tively, the murder rate of police force members is about 1 in 52, while the national average is about 31 murders for every 100 000 citizens.

Van Zyl highlights that stock theft is also greatly impacting on the farming sector. The theft of produce, fuel and fertiliser is a great challenge to financial sustainability and, therefore, farming does, in many cases, not seem viable anymore, he says.

“Agriculture is becoming a problematic economic activity, with many uncertainties part and parcel of the post-1994 transition, which brought about such challenges as land reform and labour relations issues.”

Van Zyl adds that South Africa’s agriculture sector is also forced to compete inter- nationally with countries that receive agricultural subsidies. “This leads to unfair competition,” he states, adding that Irish butter is plentiful on South African shelves.

“There is a belief among those in government that, previously, farmers were highly subsidised by the apartheid government, which is untrue. These subsidies funded the erection of fences, the building of dams and the implementation of erosion containment measures – not the sale of produce.”

However, besides fuel rebates, government refuses to subsidise commercial farmers, he notes.

Meanwhile, he says foods such as maize, bread and milk are supposed to be affordable to lower-income citizens, but often are not affordable. However, it is not a case of these products being overpriced, but rather that these income groups are forced to spend a lot of money on other living costs, such as transport, energy and education, which makes these foodstuffs unaffordable.

This forces the poor to make a loaf of bread last for a week; they then avoid certain food groups, which, in turn, affects the population’s intake of recommended dietary nutrients and, subsequently, its health, says Van Zyl.

International food-aid programmes have also cut down on deliveries to Africa and currently deliver only to vulnerable groups, such as children, the elderly and the ill, owing to high transportation costs.

Meanwhile, food consumption patterns in South Africa are changing, owing to a growing lower middle class. As a result, there is an evident increase in the demand for rice supplies, rendering it simplistic to believe that the majority of the population rely on maize, states Van Zyl.

South Africa, however, is not a rice producer and, while there is an overproduction of rice in the Far East, the cost of transporting it to South Africa is significant. Therefore, a future shortage of rice can be expected as the country’s lower middle class keeps expanding.

“However, input costs of food production continue to increase. Therefore, while food prices may rise, this is not necessarily to the benefit of farmers,” Van Zyl explains.

“A bottle of wine may sell for about R29.99, but a grape farmer only gets R0.54 from that sale. A farmer is a price taker. He plants his crop, but inevitably he is totally dependent on what price the market offers him on a specific day.”

Despite local agricultural challenges, South Africa remains a net food exporter, selling 30% more agricultural goods abroad than what it imported in 2010, reports the latest South Africa Survey, published in January 2012 by the South African Institute of Race Relations.

The survey by the Johannesburg-based institute says South Africa’s agricultural exports grew by 10% between 2008 and 2010, with total agricultural exports amounting to $6.8-billion in 2010. During the same period, agricultural imports increased by almost 1% and amounted to $5.2-billion.

Agricultural exports comprised 5% of South Africa’s total exports in 2010, and agricultural imports accounted for 2% of total imports.

Agriculture is the only sector of the economy that produces a product that the nation cannot live without, says TAU SA. “A nation’s food security is crucial to ensuring national growth, health and independence.”

Edited by Tracy Hancock
Creamer Media Contributing Editor

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION