"The producers of agricultural products are not responsible for improving the profitability of the value chain outside the farm gate because most agricultural products are traded in a futures or an open market and the result of the free operation of the local and international market forces of supply and demand.
While the prices of manufactured animal feed and human consumer products are based purely on the total production costs of the producers plus a fixed profit margin, a luxury that agricultural producers do not have," says Fanie Brink, an independent agricultural economist.
He referred to the article "Duurder mielies, soja plaas druk op winste" ("More expensive maize, soya puts pressure on profits") which appeared in the “Landbouweekblad” of 29 October 2020 which creates the impression that the local grain producers are responsible for the latest increases in the prices of maize and soybeans.
Brink says the prices of primary agricultural products are totally out of the control of producers because they are price takers and not price makers and not as in the case of agricultural input suppliers and food producers who base their prices on a price formula. This is the main reason why the consumer prices of food and the prices that producers pay for their inputs have always risen faster than agricultural producer prices. Therefore, the "higher prices of maize and soybeans" cannot be blamed on the grain producers as the reason why chicken and milk producers are experiencing great pressure on their profitability.
The expansion of the chicken producers' production capacity as part of a long-term commitment to the "poultry master plan" which will significantly harm the profitability of the industry if the consumer prices of chicken meat fall as a consequence. If the main purpose of the plan is to expand production, it must be under suspicion in terms of the demand, prices and profitability of chicken production.
Meanwhile, the import tariffs on imported chicken meat are being adjusted more frequently against unfair import competition than in the case of the import tariffs on cereals, with which the producers and marketers of chicken meat have a major problem, despite the fact that at the same time they pass the full tariff increases in their price formula on to the end consumers.
According to the South African Poultry Association (SAPA), chicken producers now sit "with an oversupply of chicken meat and a reduced demand due to the pandemic that keeps prices under pressure, and at the same time with high feed prices" which are determined by the local and international market conditions over which grain producers have no control!
Due to the extensive production capacity, over which chicken producers had total control, the producer prices of chicken meat, according to SAPA, fell by an average of 2,2% in the second quarter of this year.
Grain producers face many seasons with the same problems when producing surpluses, over which maize producers have virtually no control, which has reduced maize prices to as much as 50% in the past and significantly higher production costs because most of their important production inputs are imported at the weak exchange rate.
While the chicken producers then have a very big advantage because maize is traded locally at significantly lower export parity prices. Unfortunately, most grain processors and chicken producers do not necessarily always pass the benefits of lower grain prices on to consumers just as quickly as when grain prices rise.
The trading of maize and soybeans on the local futures market, SAFEX (SA Futures Exchange), offers grain buyers, just like producers, a very large opportunity to hedge the prices they pay against price risks. Chicken producers must also improve their production efficiency like the grain producers by applying the latest technological developments to produce more chicken with the same amount of grain or to produce the same amount of chicken with less grain.
"In my opinion, maize producers have always planted too much maize that had to be exported, which has significantly benefited the buyers and consumers of maize for many years. While it has become almost impossible to produce maize profitably for the overseas markets at the low export parity prices, despite the weak exchange rate, but mainly due to the high export costs. Specifically, with imported production inputs at high import parity prices due to the weak exchange rate. While the state's monopoly on fuel prices, electricity tariffs, labour wages and interest rates continues unabated to dramatically reduce the profitability of the agricultural industry.
The question has also not yet been finally answered when maize producers will run the greatest financial risk if they produce too much maize in a good season and too little maize in a bad season and whether the risk would not have been lower in both cases if they had planted fewer hectares. In both cases, their income is determined by the price per ton and the yield per hectare and therefore it is difficult to agree with recommendations that more maize hectares should be planted if all the variable and unpredictable factors are taken into account!
