Johannesburg - Although the South African is healthy, food prices remain high, said Ernst Janovsky, general manager of
Absa AgriBusiness, on Friday.
"Food prices are unlikely to come down dramatically any time soon - if ever! - the wild card being the exchange rate, and while this is bad news for local consumers, it is good news for South Africa's agricultural industry, he said.
"Agriculture in this country is healthy and will continue to be so, in the future. It is a major support pillar of our economy, contributing around 1.5% of GDP," Janovsky said.
He noted that despite the current global economic downturn and the reduction in fuel costs, demand for food would remain high and prices would continue to be bolstered by world governments' spending, which is designed to support food production structures.
Janovsky said that the South African agricultural sector should not be seen in isolation, and added that consumers in countries that experience booms, such as China and India, had acquired a taste for poultry and meat.
"They may settle for cheaper cuts when they feel the pinch, but they will not dump these products. As a result, the demand for grain - as animal feed - will remain high and possibly increase further."
He pointed out that South Africa's agricultural market was governed largely by overseas factors; local prices were dictated by prices obtained on the international market, and South Africans would always pay a price that falls somewhere between the import and export cost of any particular commodity.
Ever-increasing costs for farmers
"When a product is scarce in this country, local farmers will sell it at the price it will cost to import it. Conversely, when there is abundance, no producer is going to sell for less than the price they can get on the world market," said Janovsky.
"In addition, around 70% of any farmer's input costs - fuel and fertiliser for example - are imported costs, over which there is no control and which are also subject to fluctuating exchange rates," he added.
"That alone will keep local food prices high."
He stressed that cost and price management remained key in terms of survival of the agriculture business.
"You must know what it costs to produce one unit before you can determine your marketing strategy.
"But that said, overall, agriculture is a profitable business and will remain so," concluded Janovsky.
Meanwhile, Bertus Kruger, Agri Portfolio Manager at Absa Insurance Company, said that farming is an uncertain business that was fraught with risks beyond the control of the farmer.
"Fast-rising input costs mean farmers have little margin for error," he said.
He added that today's farmer was faced with ever-increasing costs, most of which are determined internationally and which he or she has no control over.
"There is a fine balance between success and failure when it comes to farming, and a single bad year, as a result of drought or hail for example, can spell disaster from which a farmer never recovers," he said.
"In the past this was not the case. A farmer could invariably cope with a year's crop loss and soon recover. But this is no longer true. Increasing input costs means it can now take as much as five good years to overcome from such a loss - assuming nothing else goes wrong!
"The fact is, no farmer can afford to take that risk," Kruger said.
- I-Net Bridge