Strategic alignment for sustainable grain production

June 2010

Dr Kobus Laubscher, CEO

 

The current maize crop is the best example of the industry’s commitment to the efficient combination of the resources at the disposal of producers. Maximum production, however, turned the industry on its head and producers are currently the victims of their own efficiency with low prices as a result of an oversupply. Optimum production and consequently maximum profits, however, require a mindshift. Economic law dictates that the only antipode for low process amidst slow, insufficient demand is to reduce production.

That requires time since with the current oversupply as a given, supply is completely price inelastic. Price changes have no impact on the current supply but with enough time for adjusting, the supply should react. The irony is that the desired reaction should be a decrease in supply over time, but the consequences thereof will be terribly negative.

Agriculture has a non negotiable role to play in the value chain; the precise place as the trigger of economic activity is readily acknowledged, however, it is not fully appreciated. Current price levels of maize have obvious negative consequences of which the most important are:

• The weakening exchange rate resulted in producers not being able to benefit from the lower and slowing input inflation.
• Profits decline and credit worthiness is eroded.
• The declining purchasing power is handicapping technological renewal and higher productivity.
• It understates primary agriculture’s development role becausevalue adding as an entrepreneurial alternative or additive of additional activity, remains subordinate.

The business environment within which producers have to operate is in no manner conducive to profitable production and the resulting restructuring can have serious negative results with regard to food security in general in the near future, but especially with regard to food availability. It is therefore essential that an enforceable strategic map as a consensus resolution for the grain industry as a whole be developed. Important issues that require consideration include:

• Effective import replacement initiatives. Too much unprocessed grain products leave the country, just to import products where value has already been added abroad. These activities are not justifiable at all if it is considered that such imports in fact boil downto imported job opportunities and profits.
• The active promotion of value adding before exports, with theprovision that unprocessed exports should in fact be taxed.
• More aggressive market expansion with a review of the biofuelstrategy central to all. It is inexcusable that unprocessed maizehad to be exported at prices that do not reflect the actual value while import replacement ethanol could have been produced.
• More real policy initiatives for the grain industry to even produceprofitably at export parity prices. The grain industry possesses the technology and management expertise to produce more competitively,but the transaction cost is too high.

Hope is not a strategy – hope that world markets will recover is at best just an aspect that could complement strategic adjustments. The grain industry deserves proper alignment of strategies at all relevant levels.

Publication: June 2010

Section: Editorial