In the final installment of a four-part series on conservation agriculture, Mary Maluleke, junior resource economist with ASSET Research, unpacks how, despite good rains and expected increases in yields, farmers are still on the edge.
In a perfect world, under perfect conditions, a good season’s rain is great comfort to farmers with seeds beneath the soil. Good rains release valuable nutrients that enhance vigorous seed germination. As the process unfolds and baby crops break above the soil, both farmers and consumers experience a great sense of jubilation and expectation.
Farmers have an expectation for revenue generation through increased supply (and often demand), that can hopefully be translated into improved profit margins. However, in our imperfect world with imperfect conditions, the narrative is not that simple.
With already declining farming profitability across the country, farmers indeed have little jubilation even amidst a rain-filled season. Positive changes in profit margins are not only dependent on favourable conditions such as good rain, but are subject to multiple variables across the sector.
As such, despite favourable weather conditions during the 2021-2022 season, farmers are still left on the edge. They are worried whether or not this good and, in some cases, excessive rain and expected growth in yields will result in a loss or enough growth in revenue to break even and produce a positive profit margin.
At the moment, this worry is heightened by the persisting impact of rising input and production costs in the agriculture sector, especially major production input costs such as fertiliser, herbicides, and fuel.
Even with increased revenue expectation, rising input costs and therefore variable expenditure remains a significant constraint and risk to the profitability of farming as well as the year-on-year profit growth for farmers.
In most cases, these three input production costs constitute between 50% to 60% of farming expenditure incurred by farmers in South Africa.
Let’s take a practical example and look at a typical conventional mixed crop-livestock production budget of a 1000-hectare farm in the Mpumalanga Highveld (with 600 hectares under cropland and 400 under veld for grazing). Before taking into account price increases, the costs of fertiliser, herbicides, pesticides, and fuel made up 53% of the maize production total direct allocated variable costs (TDAVC), and 58% of the soya production TDAVC.
(See Figure 2 for a detailed presentation.)
Input prices have risen on average over a one-year period, with seed by 6%; fertiliser by 128%; agrochemicals by 18% and fuel by 40 %.
Taking these massive price increases in the 2020-21 season into account, the expenditure proportion of these costs rose from R6 166 to R7 785 (maize), and R4 963 to R6 295 (soya).
(See Figure 1 for a more detailed presentation.)
Altogether, these input price increases will increase the TDAVC proportion of fertiliser, herbicides, pesticides, and fuel costs from 53% to 59% (maize), and 58% to 64% (soya). Resulting in a 26% (maize) and 27% (soya) annual growth increase in their proportion of TDAVC.
In both cases, the ratio of these input costs outweighs those of other costs, especially for the soya production.
Unless food prices rise just as significantly as input prices, farmers will have to forgo a significant portion of their profits as a result of increased input costs. As it stands, it is highly unlikely for all these costs to be redirected into food prices given the complex socio-economic nature of the country.
This scenario will most probably leave farmers with a relatively small food price increase and no choice but to consider other more efficient and low external input sustainable agriculture solutions.
Just to highlight why this is necessary: only 3 out of 16 fertiliser, herbicides, and pesticides products had decreased in price in the last year.
Lower costs, bigger profit margins
Farmers, now more than ever, need to take a step further in considering a conversion to conservation agriculture, which has worldwide proof that it is an appropriate low external input sustainable agriculture solution.
In a typical conservation agriculture production system of the same farm as described above, the initial fertiliser, herbicides, pesticides, and fuel input costs could be significantly lower than those of a conventional production.
As such, the price increases will not nearly have a similar magnitude of impact as in conventional production.
In addition to the lower production costs, adopting conservation agriculture principles such as no, or minimum till, soil cover and diversity, guarantees a reduction in mechanical tillage and agrochemical practices. This happens through the restoration of soil health and the resulting reduction in the quantity and cost of fertilisers, herbicides, pesticides and fuel.
The combination and implementation of all conservation agriculture principles can eventually result in significant cost savings, stabilise yields, and improve profit margins.
- Mary Maluleke is a junior resource economist with ASSET Research, currently involved with a conservation agriculture project led by Hendrik Smith. In 2019, she obtained a Master of Commerce degree in economics from Rhodes University.
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