A JOURNEY THROUGH TIME

THE

GRAIN AND OILSEED INDUSTRY

OF SOUTH AFRICA – A JOURNEY THROUGH TIME

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Price formation

Single-channel system

After the introduction of the single-channel marketing system in 1944/1945, the

maize producers were in a position where the price as well as the market was guar-

anteed for their products. According to this system, the producer price for maize

was based on the average production costs as determined by the Department of

Agriculture. The Maize Board submitted a proposed price to the National Marketing

Council, who in turn made a recommendation to the Minister of Agriculture. The

minister then decided what the price should be and presented it to the Cabinet for

approval, after which he announced it.

The way the producer price was calculated and the fact that the price was guar-

anteed, including more availability of financing and subsidies on the costs of

financing and other forms of government support such as subsidies and rebates,

encouraged producers to expand maize production. In time this gave way to

surplus production, which added to the pressure on the producer price.

The basis on which the producer price was calculated in the mid-1970s actually

led to prices that were unacceptably high according to the authorities, especially

due to the effect of the rapidly accelerating inflation rate. Therefore the govern-

ment decided in 1981 to move away from the above-mentioned price formula and

no increase in the producer price for maize was permitted that year. This decision

led to great unhappiness among the producers, as it placed them in a very bad

financial position in a year in which it was hoped that the record maize harvest

would contribute to the financial recovery of many maize producers. Furthermore,

various measures were introduced at the same time by the Department of Trade

and Industry to protect and/or promote other agriculture-related industries at the

expense of the maize producers.

1982 NAMPO Congress

At an extraordinary NAMPO Congress on 23 June 1982 the maize producers decid-

ed unanimously to accept a market-related economic system for the maize industry

– within the ambit of the prevailing single-channel marketing system. In terms thereof,

the Maize Board would still be the only buyer and seller of locally produced maize, but

any person could freely import maize. Furthermore, all restraints and levies on the

importing of farming input resources and raw materials needed for it would be lifted.

Since then the initial pricing formula was never fully implemented again and until

1987 the maize prices were established annually on an ad hoc basis. This caused