Abnormal farming conditions require better risk management

Economic adviser at PricewaterhouseCoopers, Dr Roelof Botha, is among the economists who believe the agricultural sector will, thanks to good rains in the summer rainfall regions, make a major contribution this year in preventing South Africa from falling into a recession.

This follows a contraction of the agricultural sector last year owing to the drought in the 2015/2016 production season for summer grains and oil-seed crops. The sector’s positive trade balance dropped from R18.85bn in 2015 to R15.54bn in 2016.

According to Stats A, agriculture contributed 2.4% to the country’s GDP in 2016. Grain SA believes that the sharp increases expected in the production of grain and oil-seed commodities this year, could lead to a significant recovery in agriculture’s contribution to total GDP growth.

But despite the fact that SA is expecting its second-largest maize harvest in history, which also led to the highest sales of new harvesters since February 2015, a devastating drought is still prevalent in about one-third of the country. 

This includes large areas of the Western Cape, the western regions of the Northern Cape and some parts of the Eastern Cape.

According to Jeanne Boshoff, Agri Western Cape’s communications manager, the province’s west coast and central Karoo districts are disaster areas. Agri Western Cape is still rendering drought relief to these areas. Especially stock farmers are hard hit.

In some areas of the Western Cape, such as the service area of the Theewaterskloof Dam – the Western Cape’s largest dam, where levels are currently alarmingly low – crop volumes will suffer owing to a shortage of water. This is especially true for late fruit varieties.

If no water is available after the harvest, the 2018 harvest could also be at risk. In Langkloof, the drought is also serious and apple producers, in particular, will suffer.

A decision by the Western Cape department of water affairs to stop supplying water to farmers along the Berg River will impact the 2018 harvest with serious economic outcomes for the industry and the whole value chain. 

Producers in this region stopped irrigating immediately after the orchards and vineyards were harvested in order to save water – even though watering the orchards and vineyards after the harvest is critically important for future good harvests. 

“We are also worried about the Brandvlei Dam’s low level because many citrus plantings should be watered into June,” says Boshoff.

Although this year’s wine grape harvest was expected to be smaller because of a second year of drought, the producers’ organisation, VinPro, recently announced that cooler nights and an absence of heat waves during harvesting led to a harvest of 1 425 283 tonnes, 1.4% more than in 2016.

Agri SA’s executive director, Omri van Zyl, points out that should fruit-bearing trees die, owing to the drought, they will have to be replaced at an enormous cost, while these farmers will then have no harvest for four to five years.

“These are in fact the subsectors of agriculture that create the most jobs.”

Van Zyl reckons the agricultural sector’s debt has, owing to the 2016 drought that is still affecting some areas of the country, increased from R133bn to just under R145bn; an increase of 8.9%. This also led to the sector’s debt ratio (liability to assets) weakening from 33.7% to the current 33.9%.

Water’s impact on the grain industry Grain SA economists point out that approximately 90% of the land on which maize was planted the past five years was dry-land farming, while the remaining 10% was irrigated. 

However, about 86% of all maize production came from dry lands, whereas 14% came from irrigated lands. In respect of wheat, the average hectarage on dry lands over the past five years was approximately 74% with 26% therefore under irrigation. The latter produced 48% of harvests, on average.

The average yield of maize under irrigation was 10 tonnes/ha and that of dry lands, 3.7 tonnes/ha.
Calculated at the current average SAFEX price of approximately R2 000/tonne for white and yellow maize, irrigation farmers earn R20 000/ha and dry-land farmers R7 400/ha. But based on production and market prices, the gross production values differ significantly from one year to the next. 

The dry-land production of wheat averaged 2.44 tonnes/ha and that of wheat under irrigation, 6.3 tonnes/ha. At an average price of R4 400/tonne the production value of dry-land wheat is R10 736/ha, while that of wheat under irrigation is R27 720/ha.

The Western Cape is the largest wheat- producing region (65%), followed by the Free State (18%) and the Northern Cape (7%). All the winter grain areas in the Western Cape are currently being affected by extremely dry conditions, and farmers have begun planting without any significant rains having fallen.

The Crop Estimates Committee (CEC) expects that 12 015 fewer hectares will be planted in 2017. This is a decrease of 2.36%. This year’s estimate of hectares under winter crops will be released in July.

Smart strategies against risks Meanwhile, the Western Cape department of agriculture has launched a Smart Agri Plan to manage climate change. At the time of writing, the dams in the Western Cape held only 10% useable water.

During Nampo Harvest Day, held in Bothaville during May, Agri SA also launched a special project to monitor and manage risk events, such as droughts, that affect the industry.

Dr Hendrik Smith, Grain SA’s facilitator for conservation farming, pointed out that the agricultural sector requires strategies in several areas to adapt to climate change. 

“Agriculture must now be managed according to smart practices. The normal way of doing it is gone forever. Conservation farming is one of the fundamental changes that should be followed.” 

He emphasised that producers have to increase yields, while at the same time limiting water loss, whether it is rain or irrigation water. “The climate is expected to become drier in many regions that currently depend on irrigation.

This creates a new demand for water-saving irrigation practices. In addition to subjecting existing systems to regular maintenance and audits, many producers are already recycling water and many of them are changing to drip and precision irrigation.”

Water consultant Willie Enright says studies on climate change have shown that the western regions of the country could face longer droughts and more floods, although extreme weather patterns, such as the recent Cyclone Dineo, could also hit the eastern regions of the country. 

“It has been found globally that a change in land usage, such as dredging marshlands and deforestation (especially on mountain slopes) worsens climate change and/or its consequences,” says Enright.

The vice president of Agri Northern Cape, Nicol Jansen, an irrigation farmer from Hopetown, says rain patterns and economic conditions have changed radically over the past three farming generations (up to and including the current generation).

“A case study on a sheep farm in the Karoo shows that farmers have had to increase their land by 7% annually in order to keep up with inflation and to maintain the same financial position. 

“Should they wish to get the benefits of economies of scale, they would have to expand even more. In good years, there are farmers who pay 45% income tax, but in lean years, such as during droughts, they do not receive a cent from government in order to regain their former position. The government in fact expects them to make provision for disasters with after-tax money,” says Jansen.

This is a shortened version of an article that originally appeared in the 25 May edition of finweekBuy and download the magazine here.

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