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Surplus production is not affordable

“The production of maize surpluses is not affordable and it is therefore not the solution to high food prices for consumers. Increases in food prices should be sought elsewhere in the food chain and not at the primary producers. The recent statements that maize surpluses must be produced to feed the population cheaply, must therefore be totally rejected,” says Fanie Brink, an independent agricultural economist.

Brink specifically referred to the statements made by Jannie de Villiers, executive director of Grain SA, last week at the South African Feedlot Association and Cattlemen Conference outside Pretoria. 

“Maize farmers should be able to farm profitable at export parity prices because then the population can be fed cheaply. At the same time, other industries that depend on maize as a feed source could also produce profitable,” says de Villiers.

Brink says producers cannot exercise any control over the volumes of agricultural products they produce or the prices they receive for it. The prices are worldwide determined by the market forces of supply and demand which has a major direct impact on the prices that South African producers receive for their products. The much lower SAFEX-based export parity prices which will be the result of maize surpluses, are by no means the net price in the producers’ pocket because its production costs have yet to be set off against it.

Agriculture does not have a price mechanism to pass its total production cost plus a profit margin on to the rest of the food chain until it reaches the end user because producers are price takers and not price makers. Unlike what happens on the input and output sides of the agricultural industry where almost all the players in the food chain, such as processors, manufacturers and retailers can fix their prices themselves on the basis of their total production costs plus a profit margin, while producers must many times absorb higher input prices and lower product prices themselves.

One of the most important realities in the marketing of agricultural products in the world is the fact that lower producer prices never resulted in a corresponding increase in demand for food as in the case of more durable goods such as mobile phones, flat screen TVs orvehicles. This problem is known as the price inelasticity of the demand for food and it will be encountered with the production of surpluses. People also spend less money on food as their income increase and rather move higher up the food chain to more protein products which are also detrimental to the demand for staple food.

The import of inputs at high import parity prices also creates a huge problem that weakens the profitability of agriculture. As many as 80% of all the inputs that are imported are subjected to sharp international price increases and the depreciation in the exchange rate. This is why the production of surpluses which are exported at much lower export parity prices but produced with inputs at import parity prices will never be economically feasible.

The production of agriculture products are, in addition to large price risks, also exposed to major production risks due to unfavourable climatic conditions. One of the most important ways to reduce these risks is therefore to produce a staple food such as maize only in production areas with a high soil potential and favourable climatic conditions. Maize producers cannot move back to the planting of more less efficient hectares in marginal production areas to produce surpluses.

The only solution to the problem that input prices increase over time faster than commodity prices lies in the increasing of the efficiency of production. Maize producers have over the past years hugely increased their efficiency of production and have proved that they can produce enough maize under normal conditions on a smaller area for thedomestic market and our neighbouring countries.

The statement that maize can be exported at a profit raises the question for whose pocket the profit will be? Because if it is purchased at a SAFEX price and exported at a higher export parity price, the export profit could not be for the producer’s pocket and he will not receive a final payment like in the old days of the Maize Board at the end of the season.

Why would a producer of maize produces more maize with all the associated risks attached to it at a low export parity price if he can produce it much more profitable for thedomestic market? Which businessman in any of the other industries in the rest of the economy will lower its price for the domestic market by half to make his product for everyone in the country cheaper?

Maintaining food security is not the responsibility of agricultural producers. It is the sole of the government who enforces its destructive socialist and communisteconomic and agricultural policy on farmers and in the process threatens food security in the country very seriously. The government has shown very clearly that he doesn’t want to help the white commercial farmers with the devastating consequences of the drought and in fact doesn’t care if the country would experience famine and higher poverty! No producer in the world can produce food at prices that poor people can afford. The sustainability of food security for the country is only possible if the production of food is profitable – there is no any other way.

“The producers of maize should, therefore, totally reject any consciously planned production of surplus maize for the export market,” said Brink.

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