Stock farming under pressure

2008-07-03 00:00

Livestock farming across South Africa is likely to come under severe pressure as a result of rising input costs for maize and fuel, among other things, resulting in this area of agriculture becoming less profitable.

This is the view of FNB agricultural economist Jan van Zyl, who told The Witness that maize price increases, which feed into increases in livestock feed prices, are likely to place this aspect of farming under extreme vulnerability.

“This means that, without an equivalent increase in farm producer prices, livestock producers’ profit margins have come under extreme pressure and, in some instances, the continued viability of production units will be threatened and farmers could exit the industry.”

He believes that there is now “a measure of price resistance on the part of consumers”, given the difficulties the consumer market faces as a result of rising interest rates and inflation.

This will seriously threaten the average producer’s profit outlook.

Price pressures on the input side are not expected to ease.

“As grain prices are dictated by the open international market, it is not foreseen that livestock feed price increases will retreat [due to ethanol demand and a weakening rand], with the result that the future prosperity of the livestock industry will depend on the increased economic position of consumers, which in turn is dependent on healthy growth in the economy,” he explained.

The latest producer price figures show that prices of food at the manufacturing point continued to surge during the first few months of 2008.

Food manufacturers have already indicated that they will raise food prices again this year.

The country’s third largest food manufacturer, Pioneer Foods, said it will need to mark up (inter alia) the price of maize by 10% to 12% and flour with 15% in the next six months as margins are under pressure.

Garth de Klerk, CEO of guarantee insurance giant Coface South Africa, said farmers in general are already highly geared, adding that finance costs will increase as a result of higher interest rates, putting further pressure on profit margins.

He also noted that fertiliser prices have increased by 120% over the past year, adding that the price of herbicides and insecticides are also starting to increase significantly.

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