Ethel Hazelhurst

A farmer makes a plan. This South African saying sums up the ingenuity of the local farming community. But farmers’ reputation for thinking around corners will be tested in the year ahead, as they find themselves unable to take advantage of a major opportunity in international maize markets.

Last season, maize farmers produced a 12.8 million ton bumper crop, according to the government’s final crop estimate on Thursday. This leaves the country with a 4 million to 4.5 million ton surplus available to export, according to Johann Theron, the head of soft commodities trading at RMB.

With a La Niña looming – cool, wet weather – another bumper season is expected. Though farmers are planting less, Nico Hawkins, a manager at Grain SA, put the next crop at 12.6 million tons. So the surplus is likely to remain intact – provided of course the weather does not take an unexpected turn for the worse.

The oversupply seems to have come at a propitious moment.

“In June, the US was expecting a massive crop and a record yield,” Theron said. “However, a drought in Russia and dry weather in the US in August has changed the outlook.”

As a result, maize prices on international markets have rocketed since June. Theron said the spot price of maize on the Chicago Board of Trade climbed to $212 a ton last week from $128 on June 29.

The rising rand has eroded some of the benefits. The currency strengthened from R7.60 to the dollar on June 28 to just over R7 last week. However, even in rand terms, the price is well up, from R973 a ton to R1 522. So it seems the perfect time to export.

But finding export markets is proving a problem. And cost-effective transport to the markets is an even bigger one.

Over the past few years, neighbours and near neighbours have been the biggest buyers of local maize. But their needs are less this year. Theron said Zambia, Zimbabwe and Kenya, for instance, had also experienced a good season.

An additional obstacle is that those countries are reluctant to import genetically modified (GM) crops, according to Theron. The same applies to China, Japan and Mexico and a number of other countries, though some potential markets are prepared to import GM crops but not for human consumption – in other words for feedstock.

The biggest problem perhaps is the transport system. Mike Schussler, the chief economist at Economists.co.za, said the rail system was expensive and inefficient and moving huge amounts of maize by road was very difficult. As to exporting abroad, he said South Africa’s harbours were among the most expensive in the world.

Another challenge for South Africa is competition from other producers, among them Argentina, Brazil the EU and Australia.

Biofuels are not a profitable option in South Africa, said Theron. “They are much more so in the US which has high yields per hectare, and where costs are relatively low and producers and blenders get incentives from government.”

While one option for farmers is to switch to non-GM crops, Theron said conversion was an expensive and lengthy process, because of the difficulty of separating the grain along the supply chain. Moreover, returns were relatively low.

While farmers are losing out, there are benefits to the rest of the community.

“The surplus is shielding us from high international prices,” said Andre Jooste, National Agricultural Marketing Council senior manager.

“The maize surplus, combined with the strong rand is very beneficial to price levels on the local market.”

Schussler made the same point. “The real beneficiaries are consumers. Maize is a staple crop and a feedstock. Chicken producers can compete with imports because grain is at low prices.”

He said chicken was a valuable source of protein and South Africans, on average, consumed 32kg of chicken a year. And low maize prices also benefit the dairy industry – another source of protein.

“But we want farmers to stay in business. We need them to plant again.”

John Purchase, the chief executive of the Agricultural Business Chamber, said: “If we are going to regularly produce maize surpluses, which we do 10 out of every 12 years, we must find more markets. It’s the responsibility of government and industry to actively look for markets.”

Schussler suggested the department of agriculture, for instance, could help market maize abroad and advise producers on the logistics and tariff structures.

He called for innovative thinking and business thinking. “Perhaps we could add value and brand the product and sell it as SAPap.” - Business Report