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Make the long term urgent

September 2010

Dr Kobus Laubscher, CEO

The common denominator in the maize industry as the leading grain in the South African grain basket is low prices and the expected impact it might have on sustainability. In this editorial we have already reported extensively on and argued about the best strategies to complement sustainability but the lack of urgency with regard to solutions remains glaring.

Grain SA has, since the size of the current maize crop, became clearer through sharp declines in the producer prices, in all possible areas engaged in debate with role-players, the most important of which surely was the government.

Slowly but surely there has been progress with the understanding of what the problem is and that unique solutions had to be found. The pace of understanding, however, was in many ways not quick enough to have an impact on production decision-making.  Sufficient evidence exist that the government of the day, despite its public support with regard to the importance of the sector, lacks understanding of the rhythm of agriculture. Decisions are still taken too late and although it might indicate a specific political mischievousness, there are definitely other reasons for this lack of understanding – an example is the late announcement of the tariff on the import of wheat.

However, it is clear that the so-called “maize crisis” is now noticed and understood over a wide spectrum and with that a collective search for a solution is developing. Unfortunately, the market remains dynamic and policy makers will have to adapt to the well known expression of "make the road by walking". The reality cannot be brought to a standstill in order to understand it better. Devise plans and solutions while business carries on!

The grain industry in South Africa is at a crossroad and can definitely be described as exceedingly uncertain. Low prices cannot be ascribed to an over-supply only, because then the downward pressure as a result of the supply will be over-stated. The answer in the medium and long term lies in the development of the demand for grains but then in a more imaginative and unconventional manner.

Import replacement and new applications is the only manner in which demand can be created for producers to perform against. South African agriculture is like any other country with comparable conditions, still dependent on the weather; and the impact of the drought in Russia should serve as an early warning. Periodic droughts cannot be forgotten but what is important is the sectors' ability to adapt to changing circumstances.

In this regard there is enough evidence that technology and managerial abilities have developed to the extent that producers will most likely constantly be capable of meeting local demand and even more. Price movements from a different source must therefore not inhibit this ability to adapt. Consequently the efforts to protect production capacity with regard to summer grains – South Africa must remain prepared to satisfy normal demand variances.

The current demand and supply situation in the maize industry is putting policy applications through its paces! The most important policies initiated since 1994 can only now be tested and distinctive deficiencies have already been identified. It is, therefore, important that the future of the industry and that which might impact on it be discounted in time and changed policies determined. The long term, therefore, is much more urgent than many would wish to acknowledge. The luxury of one or other new dawn with high prices in the future will only be realised through hard work on unique solutions now. A pragmatic approach to the problem remains appropriate, but that the market must first be stabilised, is obvious.

A reduction in the tradable supply of maize in the local market is the ideal point of departure to make possible the feasibility of other remedies. Therefore, confine the long term planning horizon to the coming planting season.

Publication: September 2010

Section: Editorial