No end to the transport differential debacle

May 2011

Jannie de Villiers, CEO

The transport differential is one of those things that simply do not have an end or will just not subside. It is like a wet dog turning endessly not knowing how to lie down on the rug and before long it is all dry.

I sometimes wonder if the JSE is not making it as difficult as possible so that all agree that it should finally be abolished. Apparently years ago there was a professor at Tuks whose motto it was that if you encounter a problem for which you could not find a solution, abolish it!

What I do not understand is that all participants on the JSE are forced to warn the market in advance if large or significant departures from their profits are expected or if they enter into negotiations that might affect the price of their shares; but the JSE itself does not issue a caution to the market if they at short notice announce major adjustments to the transport differential. How does this work?

I am not just busy revisiting the debate about the transport differential, but where was the process of consultation with the market? An adjustment was made to the method of determining the differential that altered the outcome but the JSE Advisory Committee was not consulted about this.

My plea therefore is that the JSE must reflect on the notice period to the market about changes that meaningfully depart from expectations. I am definitely an advocate of adjustments to every system and calculation that would benefit the market, but there is also a responsibility regarding consultation and proper notice of changes. Hence we require the inputs of all the role players to be able to do all the calculations.

Grain SA’s request is that role players who do not want to furnish the JSE with the required data for its calculations, should be unveiled so that we may all know who they are. If in addition some of the role players are a monopoly, the Competition Authorities should surely take note of this, or am I wrong? Maybe the time has also come that this type of information regarding which percentage grain is transported by road and by rail of each elevator with SAGIS, be  published. Then nobody will be surprised if the differential is published.

It is one thing to always be the first to complain when food prices increase, but it is another to take responsibility yourself when inefficient transport systems discourage producers to produce food. Have the country’s rail transport authorities really properly analysed their share in food security?

In view of the emphasis that the authorities place on the development of employment opportunities now, the extraordinary adjustment to the transport differential will have a negative effect on employment opportunities. Agriculture is and remains the ideal sector for creating employment opportunities but, if at the same time the country’s inefficient rail transport system is penalising producers, it is contra productive. Producers can only focus on costs that they have some form of control over. Labour’s minimum wage is prescribed but not the numbers.

What are we to do? One option is the final abolishments of the differential with the explicit stipulation that we assure that the information which must be used to determine site differentials are transparent and available to everyone. If the big buyers, elevator owners and traders sit with all the information and producers have to negotiate with them individually about transport costs, there can be only one winner.

We must not at the end of the process be even worse off. The other option is to publish the formula of the calculation as well as the variables so that nobody may be caught off guard. Then it will be like the import tariff. No one likes to pay it but it is a known variable. There still are a few assumptions and you can take a calculated risk.

Publication: May 2011

Section: Editorial