Where will the bread come from?

February 2011

Dr Kobus Laubscher, CEO

The new year kicked off with excellent rains and even some damage to the young summer grain crops in certain areas. Except for such and other possible negative natural phenomena, there is not much that producers can do to the size of the summer crop already in the soil.

Arguments in favour of a reduction in the tradable local maize stocks resulted in different outcomes. Weather conditions in many instances dictated what could be planted, but the current situation leaves no uncertainty with regard to demand and supply conditions.

The market is discounting the large supply and early crop expectations by way of low and declining prices and the demand remains weak. Consumer spending is also not expected to contribute to price relief for producers. It is clear that more and more factors outside the farm gate will dictate what is possible on the producers’ side of the farm gate.

It is true that the strong rand is stripping local prices of the increasing price tendencies internationally. But on the other hand it has also contributed to lower input inflation, because the strong rand favoured the industry, given the dependency on imports of the main input requirements. In short, the exchange rate is under pressure and since the middle of 2010 has gradually weakened even further.

Consumers have benefitted from the lower producer prices and food inflation is currently unrealistically low. Consumers were supposed to spend more based on the low food prices, but early indications are that any lower prices were used by the consumer as a debt breather opportunity. Lower interest rates and low inflation, however, do not persuade the consumer to spend more on food. These circumstances hinder proper planning for the seasons ahead.

2011 in many ways will present watersheds. There will have to be clear strategic directives on what to do within the maize market that in all possibility will remain in a surplus situation, obviously depending on what the weather dictates. So much has already been said about the fact that the welfare of the grain sector lies in the ability to expand the demand.

Producers have the right to hear and to see what the Government is going to do to address these realities in changing policies. The industry cannot afford anymore to wait for an economic upswing that will make producer prices rise to the levels required for the recovery of profitability.

Local price increases as a result of international price tendencies is necessary, but there can be no realistic expectation that this would happen within the foreseeable future. Producers will therefore have to react much more entrepreneurially this year with the realities on hand. The answer lies in more clever marketing and ruthless cost management.

Against this background Grain SA will have to launch more intensive efforts to guide policy development to limit the negative impact of a rudderless market. The focus remains on the grain producer’s operating environment to be able to produce at a profit and the 2011 Congress will be an opportunity for such introspective reflection and strategic repositioning.

Publication: February 2011

Section: Editorial