FARMERS FIGHTING THE ODDS
IT’S EXPECTED that the agricultural industry’s terms of trade (the extent that producer prices are related to input costs) could fall to below 1 this year. Last year the figure was 1,11 and in 2006 1,01. Even though South Africa’s gross farming income in 2007 rose by 21,4% to R96,7bn – its highest level yet – farmers are suffering increasingly under the cost pressure of diesel, fertiliser and other farming essentials.
Fuel prices especially are proving a major problem for farmers: the agricultural industry reckons that every 1c increase in the price of diesel costs the industry at least an extra R10m/year.
One of a farmer’s major expenses is fertiliser. Last year it was 11,3% of total expenses, but the figure has since risen to 46,3%. That will have a dramatic impact on net farming income this year.
The Department of Agriculture’s latest economic survey of SA’s agriculture to end-December 2007 showed average input costs increased by 12,8% compared with only 5% over the previous year. If it hadn’t been for tractors and other agricultural equipment, which rose by only 0,4%, that increase would have been considerably higher.
The situation is much worse this year: the fertiliser price, which correlates strongly with the fuel price, is already 100% up on last year’s figure. The oil price rose from about US$75/barrel at the beginning of August 2007 to around $140 and then fell to last week’s $118/ barrel – which is still 57% more than it was this time last year. Meanwhile, average grain prices haven’t increased from what they were last year.