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Research and acceptance of new technolo-
gy throughout the chain, play a very impor-
tant role. The adoption and implementation
of more advanced techniques provide mill-
ers with the ability to produce maize meal
more efficiently than in the past. The capital
outlay to erect a new proper mill with a mill-
ing capacity of 1 ton per hour is estimated
between R4 million and R5 million.
Factors affecting the price
of maize meal
The retail price of maize meal is influenced
by several factors, namely:
The time of the month of sale
It is a fact that consumers buy more maize
meal towards the end of and the beginning
of the next month when they receive sala-
ries, wages and grants.
The brand
Some consumers are more brand sensitive
than others. Consumers in South Africa tend
to prefer and buy certain brands, depending
on their available income, at specific times
of the year. It is also the opinion of millers
that consumers switch to a cheaper brand
when maize meal prices increase.
The type of maize meal
– super or special
Mainly two types of maize meal are sold in
South Africa, namely super and special. I am
also of the opinion that the lower end con-
sumer tends to switch to special maize meal
when maize meal prices increase. Special
maize meal has a higher extraction rate and
therefore more product can be retrieved,
which normally makes it cheaper.
The packaging costs
It would appear as if poorer consumers tend
to move to bigger packages, either 10 kg
or 12,5 kg – and even to a 25 kg package.
The typical rule of thumb is that more than
70% of maize meal is bought in 10 kg bags
and bigger. Certain millers report that pack-
ages more than 10 kg comprise 90% of their
sales.
Transport and distribution
costs
The transport from the mill to the retail out-
let also plays an imperative role. The further
the distance from the mill, the higher is this
part of the costs.
The operational cost
to mill maize
The operational cost can differ from area to
area. For example, the operational cost of
a mill in an urban area will be much higher
than that of a mill in the rural areas, due to
factors such as municipal rates and different
structures for electricity tariffs.
Machinery cost
The capital cost to erect a maize mill can
easily be R5 million for a mill with a capacity
of a ton per hour.
Maintenance cost
The maintenance cost to operate a mill can
easily be up to 10% of the capital cost.
The price of maize
The price of maize is probably one of the
most determining factors of maize meal.
Prices normally increase when shortage
is expected in the market. It is also at this
stage that maize millers start contracting
for longer periods in advance – either on
Safex, with producers or with maize storage
owners.
Storage cost
South Africa has a well-developed storage
infrastructure. The cost to store maize dif-
fers from silo owner to silo owner. Alterna-
tive facilities also exist, like on-farm storage,
silo bags and bunkers.
Hedging cost
Millers explain that they need to hedge or
either procure maize on contract basis to
ensure they have enough stock for their
clients. Therefore, there is a difference be-
tween the maize meal price and the maize
price. When surpluses exist, the difference
period is normally shorter compared to
longer periods when shortage exists.
Retailers and retail margins
The South African retail system is highly
concentrated and has been investigated
by the South African competition authori-
ties several times. They normally come
under crossfire from producers and from
consumers.
It is important to note that they contribute
to the very well-developed food system of
South Africa. The competition is tight and
there are many barriers to entry in the mar-
ket. Retailers normally contract millers in
advance to mill a specific quality of maize
and to supply a certain quantity. Retailers
need a constant flow and a reliable supplier
who consistently supplies a quality product.
Retail margins can differ from retailer to re-
tailer and from time to time.
Shelf life
The shelf life of maize meal is short. The
closer maize meal comes to its sell by date
the cheaper it becomes – and then it is nor-
mally offered as special offer.
Rebates paid to retailers
If in the negotiation process a retailer wants
to take up a certain quantity of maize meal
from a miller, rebates are negotiated and
need to be paid back to the retailer. The per-
centage differs from negotiation process to
negotiation process and from quantity to
quantity.
Summary
Maize meal is an important source of starch
for many South Africans. It also plays a vital
role in the rural economy of South Africa.
The maize meal industry is well developed
and is also highly concentrated, as is evi-
dent from this article.
The industry received a lot of attention in
the past due to uncompetitive behaviour.
Some of the stakeholders were heavily fined
in the past. It was also reported that numer-
ous maize meal firms went out of business
when the white maize price increased to
above R3 000/ton in the 2016/2017 market-
ing season.
The next article will focus on maize meal
trends as well as the price transmission
effect thereof and how the National Agri-
cultural Marketing Council (NAMC) reports
thereon.
MAIZE MILLERS
MARKET SHARE IN %
Premier Foods
27
Tiger Milling Co
20
Pioneer (Sasko)
18
Pride Milling
10
Total
75
TABLE 1: MARKET SHARE OF THE TOP FOUR MILLERS IN SOUTH AFRICA.
Source:
Who-owns-whom
, 2017