2011 – the year of reckoning

January 2011

Dr Kobus Laubscher, CEO

Two recent publications once again placed the grain industry in the spotlight. The more direct reference is a report by the National Marketing Council about the nature, size and tendencies with regard to the production inputs of maize and wheat. The second publication is the end result of various strategic documents highlighting the direction and expectations of economic growth in the economy.

Both underline the important role of this sector and what risks the unlocking of the development potential hold. Read in conjunction with other pronouncements from experts, they all indicate that the grain sector is in for some exciting times. Strictly speaking, the grain industry is ideally positioned to act as catalyst for both first and second line wealth creation.

On the input side it is clear that the mix of inputs indicates increasing dependency on factors that are economically outside the control of local producers and as such pose a threat to sustainability over the long term. The role played by oil dependant inputs and the gradually increasing price of crude oil as a result of the post-recession recovery of the world economy, emphasises the importance of more with less. Producers remain price takers and if input cost increases put the exchange rate under pressure, improved efficiency remain the only counter for deteriorating profitability. The demand for grain as an input in protein production grows proportionally as the economies of the world outgrow the results of the financial crisis and increasing expendable income create new demand possibilities.

In short, production increase is only affordable if the market can accommodate it and moderate shortages will restore confidence. Profitability must guide production decisions and the indications are that the existing supply will not be able to meet the demand. The challenge, however, remains to be patient enough to reap the benefits.

The South African grain industry, because of its dependance on imported inputs, is too exposed not to give attention to the unlocking of the benefits of value adding outside the farm gate. It is just not an affordable option any more to export unprocessed grain and keep the balance of payment under pressure through a growing dependency on imported value added products.

Consequently there is no more room for existing policy that does not actively support value adding. Pronouncements of intent by the different government departments are just not good enough anymore. The industry will in 2011 be justified to agitate against anything less than proven encouragement from the government to industrialise the industry.

This brings us to the second publication referred to above, namely the growth and development strategy of minister Patel. The above-mentioned document is controversial in many ways, but contains workable elements that provide room for other strategies to be implemented. One such a directive is the development strategy of the minister of agriculture, forestry and fisheries that falls under the umbrella of re-prioritising agriculture as a development medium by president Zuma. Sustained agitation and negotiation has government now thoroughly under the realisation that agriculture is inseparably part of the tools required to wake the South African economy from its growth-sleep.

Publication: January 2011

Section: Editorial