South African farmers are reeling from the news of near simultaneous price hikes in fuel, electricity and labour wages that are threatening viable farming.
South African farmers are reeling from the news of near simultaneous price hikes in fuel, electricity and labour wages that are threatening viable farming.
Following the labour unrest in De Doorns area of the Western cape, wages have been hiked to up to R105 a month, with fuel also going up 81c per litre, and electricity expected to rise 8% every year for the next five years.
Since the beginning of last year the fuel price has increased by more than 40%, while electricity has increased 170% in the past five years.
According to a joint study by Potatoes South Africa and the Bureau for Food and Agricultural Policy, these difficulties give agriculture one of the lowest Return on Investment (ROI) rates of all investment options on the JSE.
There is now a much smaller margin for error, making farming one of the tougher businesses to keep operational. Local farmers have been hit hard by the increases.
“We get by with difficulty,” said Simon Matthews, a dairy farmer in the Alexandria/Kenton area.
Although dairies are in a better position than other farms because they are fairly mechanised, they are still have to pay significantly more in overtime wages, as cows have to milked on Sundays.
The knock-on effect of a rise in the price of maize has also rocked them. Maize – in the form of feed concentrate – is the biggest cost component for dairy farmers.
“The maize-to-milk price ratio is now an even one-to-one, perhaps even less, and we can’t set our own milk price,” said Matthews. “Things are tough, and there will be casualties.”
Edgar Brotherton, another dairy farmer with a company that milks close to 5 000 cows was similarly alarmed.
“I’ve been in this business for 25 years, and it has only gotten more difficult,” he said.
For him, the price of electricity is not just a problem, but its supply too. “It’s totally unreliable. We need to expand to keep up, but we can’t get any power. It’s just not available.”
Brotherton’s farm uses irrigation extensively, and so he has had to resort to using generators to make this possible – an even more costly addition.
Subsidies for electricity, such as off-peak usage, are in place, but they have “no value”, according to Brotherton. “We would irrigate at night, but the electricity supply is so unreliable that it’s almost pointless.”
Brotherton also says the hikes are killing small farms, while making big farms bigger. “It’s a major block for start-ups and smaller BEE farmers,” he said. “Bigger organisations have the advantage of economies of scale, and so their larger volumes can absorb some of the costs, but the milk price is getting left far behind.”
Suggested cost-cutting methods, such as mechanisation, are not promising. “The capital is difficult to obtain,” said Brotherton.
The situation is even worse for intensive farming, such as pineapples, chicory and Peppadew peppers.
Norman Smith, another local pineapple, chicory and dairy farmer, has had to emphasise cross-subsidisation to meet the rising costs, although imported cheaper products have made even this increasingly difficult.
Indian chicory has flooded the market, leaving Smith with a surplus that he can’t move. The production of chicory requires more labour-intensive farming — Smith has 36 permanent staff on his farm, and hires up to 80 additional seasonal workers throughout the year.
The hikes are pushing farmers to demand more productivity from their workers.
“It’s turned from a break-even game to a loss situation. I’m going to have to make some big decisions [as to]if I’ll continue pushing pineapple farming,” Smith said.
He is considering focusing entirely on dairy farming – a move that would lead to a dramatic drop in seasonal employment.
In 2012, Statistics South Africa reported that employment in the agricultural sector had dropped by 17 000, from 64 000 to 47 000, a 26.6% drop that is likely to rise only as the price hikes leave their mark.
Dave Mullins, who grows maize and peppers on a farm outside Riebeeck East says they are now spending 50% more on labour than originally budgeted.
Options such as mechanisation are not viable, as pepperdews have to be harvested by hand. Their only option, he said, is to increase productivity.
The farm has introduced a minimum performance clause into its workers’ contracts, pushing them to harvest more crates per day – but even with these increases in productivity, the offset isn’t high enough to meet the increased wages.
“Anyone who produces perishables is in trouble,” said Mullins.
He added that they secure off-take agreements and secured buyers with predetermined prices before they even put a seed in the ground.
Under these new hikes, the farmers’ predictions are chilling. “Smaller farms are going to suffer, as they have no capacity to increase production volume, and the margins of error for even big farms are even tighter than before,” he said.
Mullins believes that there will be a massive loss of smaller farmers, and even wholesale job losses, which will only become worse as farmers mechanise.
Government, Mullins said, must help agriculture by protecting local produce, increasing farming subsidies and introducing an import surcharge.
Despite staying positive, Mullins said that the effect of the hikes will be far-reaching.
“Farmers will be forced to become more innovative and reconsider what to grow, but we might eventually battle to feed the country, and only then will people wake up.”
