The ANC government has no idea that economic growth and progress are totally dependent on the profitability and sustainability of all the individual industries, such as, among others, the production, manufacturing, construction and trading industries in the primary and secondary sectors, as well as the service industries in the tertiary sector of the economy,” says Fanie Brink, an independent agricultural economist.
Brink has referred to the information session of FNB Agrisake in Johannesburg last week, during which the latest developments in the maize industry were discussed.
He says that besides the severe droughts, the biggest problem in the maize industry is the fact that maize producers have always planted too much maize because they would have been better off in the long run if they have planted fewer hectares. The 3,2 million tons transfer stock available this year referred to during the discussions is, in fact, white maize for which no international market could be found and which, with the previous record crop of more than 17 million tons, caused the price of maize to fell from R5000 to R2000 per ton.
Producers' revenues, like those of other entrepreneurs, are determined by the size of the crop and the prices that are greatly impaired if surplus maize is to be exported at much lower export parity prices, while their production costs increase excessively each year. A maize price of R2400 per ton should not encourage farmers to plant more maize next season and they should plant at least 300 thousand fewer hectares because this price cannot even cover their production costs on an average basis. In addition, the producers are responsible for the storage costs of the surplus maize that can lie in the silos for months.
Agricultural producers are price-takers and not price-makers and therefore do not have a mechanism, such as the input suppliers of the means of production and the buyers of agricultural products, to pass on their cost increases to the end-users, as the prices of agricultural products are purely determined through the market forces of supply and demand in the local and international markets. This means that agricultural producers should, in most cases, absorb price increases on the input side of agriculture, which are set by input suppliers on a production cost plus a profit margin.
Human and animal food manufacturers and traders also set their prices on a production cost plus a profit margin and are very successful in passing on all their cost increases on to the consumers. A pricing mechanism and luxury that the agriculture industry does not have.
These two factors are directly responsible for the fact that the prices of agricultural inputs and consumer prices of food are always rising at a faster rate than the producer prices of agricultural products. Government policy also causes cost increases for agriculture, including various taxes and levies, increases in electricity tariffs and minimum wages that producers must absorb.
"Food security can only be sustainable if food production is profitable and therefore the following basic objectives are the prerequisites for the agriculture as an industry in the primary sector of the economy:
Firstly, promoting the profitability and sustainability of agricultural production based on acceptable scientific and economic principles is to ensure the financial survival of agricultural producers.
Secondly, the support and promotion of the agricultural industry by actively addressing the threats posed by the international and local political and economic developments to the industry and exploiting the opportunities that new technological and economic developments can bring to ensure food security for the country .
Thirdly, the establishment of a political and economic policy environment within which agriculture must be enabled to make a greater contribution to economic growth through an improvement in the profitability of the industry."
The same goals apply equally to all the other industries in the primary, secondary and tertiary sectors of the economy, which must also be supported because economic growth, development and progress are totally dependent on the profitability and sustainability of all the individual industries in the economy.
However, the ever-weakening exchange rate, which will further weaken dramatically due to government ignorance, incompetence, bankruptcy and corruption, holds limited benefits for agricultural producers when surpluses have to be exported, but it does not offset the great disadvantages when up to as many 85% of the production inputs producers need to produce each year have to be imported.
The protective import tariffs on the subsidised dumping of agricultural products by other countries in the international and local markets are totally inadequate and purely a political matter for the ANC to impress their supporters.
"It is in any case not the responsibility of maize producers to produce enough maize for the country, it is the government's responsibility."
The government needs to support agriculture to produce food as efficiently and profitably as possible because it is the only way to ensure food security for the country.
Brink says the ANC has no understanding of how economic growth is created and, even less, that it will totally destroy the economy and the country within the next 5 years. The consequences of a very possible full-scale recession this year in the country will make it completely impossible and irreversible for the agricultural and all the other industries in the economy to prevent the ongoing destructive policies of the ANC which are fully supported by many organisations and private initiatives.
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Bothaville
31 March 2019
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