Durban — Farmers have been advised to exercise at least some caution regarding the spending of their recent financial windfalls as the landscape may have begun to shift.
FNB Agribusiness agriculture information and marketing head Dawie Maree said although cost pressures that emanated from a dramatic increase in fertiliser and fuel costs that were seen earlier in the year due to the war-induced supply crunch have eased lately.
Maree said it remains high relative to the previous season.
“When you combine this elevated cost trend with the potentially negative impact of rising domestic and global interest rates on consumer demand, cautious spending is probably the best policy for everyone in the agri sector right now,” said Maree.
Maree said this does not mean farmers should not be investing in the future of their operations, but they should be doing so in a measured way.
“Just as it is never advisable to over-capitalise on your farming operations, it’s also possible to be too cautious and save yourself into bankruptcy. The most prudent approach is to leverage any current favourable financial position to invest in new and productive technologies that will deliver improved outputs in the future, but also to focus on cost containment where possible and appropriate and ensure that you retain a good financial buffer for when conditions become less favourable, as the cyclical nature of agriculture dictates, they eventually will,” he said.
Moreover, FNB Agribusiness senior agriculture economist Paul Makube said the heavy rains had created water-logging challenges in several key farming areas by the end of 2021.
He said the impact on yields has not proven to be as severe as previously anticipated.
Makube said the maize yields are a good barometer of overall crop performance and projections for maize have improved slightly, from 14.53 million tons anticipated at the beginning of 2022 to around 15.02 million tons currently predicted.
Makube said despite the slight drop in anticipated yields from the previous season, the volumes are still significantly higher than the historical 10-year yield trend and given that domestic consumption typically averages around 11.8 million tonnes.
He said there would be a healthy surplus available for export.
“These positive trends around yields and prices, which have now continued for the past two years, have resulted in very positive revenues and cash flows for most farmers in the country. It is unsurprising that this has filtered through to other areas of the country’s agri industry,” said Makube.
Despite the strong yields enjoyed by most farmers over the past two years, margins remain tight. While there have recently been signs of a slight economic reprieve in terms of moderation in global food inflation and fuel prices coming down a little, it’s still far too early in the current inflationary cycle to make a call on whether these events signal the end of the upward trend.
Daily News