2022 NAMPO Harvest Day Interview
Dr Pieter Taljaard, the CEO of Grain South Africa (Grain SA) fields questions from FARMERS REVIEW AFRICA on the 2022 NAMPO Harvest Day and topical issues in world affairs that are having a bearing on local grain production.
FRA: How significant is the 2022 NAMPO Harvest Day in the context of the impact of the Ukraine War on global grain production?
Dr Taljaard: For clarity of context on the significance of 2022 NAMPO Harvest Day against the backdrop of the Ukraine War, allow me to take you back to the beginning of the pandemic at the outset? What we have learned from our experience with the pandemic, as well as the Ukraine War, is the importance of agriculture – local production in particular. Relating to the Ukraine War, this year there is most likely to be a global scarcity of wheat, which underscores the importance of increasing local wheat production capacity.
Lastly, permit me to state something about ourselves which we tend to underestimate sometimes. In South Africa, we produce relatively affordable prices, very high quality and safe foods that pass international standards. We have to build on this strength, proudly and passionately.
FRA: Are there changes that have been brought aboard to share with stakeholders regarding how they could cope with the impact of the Ukraine war on their operations?
Dr Taljaard: It is inevitable that the War in Ukraine will affect local food production. This is given that both Ukraine and Russia are some of the world’s biggest exporters of fertiliser, but also in terms of specific agricultural commodities, especially grains and oilseeds. Fertiliser, specifically when one looks at grains, is the single biggest variable cost. Obviously, it varies from one farm to another, from one region to the other and one crop to the next. Nevertheless, overall, on average, it is the single biggest variable expense.
- Increase in fertiliser prices and restricted supply of crop protection products
Even before the Ukraine Crisis, we had seen an increase in fertilizer prices due to various effects, not only global supply chain disruptions, but also production facilities that have not been able to operate as a result of the COVID-19 pandemic. Furthermore, increase in energy prices has exacerbated the situation, as the production process is very energy-intensive.
Ideally, local fertilizer production should, to some degree, alleviate the impact of the war on the international supply chain. However, the reality is that it is also beset by transportation challenges (local transport costs) and other structural competitive challenges. Phosphate, for example, gets mined locally outside Pharaborwa, near Kruger National Park and is transported down to Richards Bay by rail, where it is processed into various forms. And from there, again, it must be transported again to various production areas countrywide. With Transnet’s transport infrastructure barely operating, as well as other road infrastructure challenges, the cost of transportation is excessive, contributing to the fact that we have amongst the third most expensive fertilizer globally (See BFAP reports for reference).
All these factors together make a perfect storm of turbulent fertilizer costs.
Above and beyond, this year we have seen very restricted supply of certain critical crop protection products, which are not available in volumes that could meet local demand – further increasing the variable production cost significantly.
There are also three factors at play that have a strong bearing on food production, causing disruptions and increased cost in food value chains. It is noteworthy that grain production (the same would apply to other food products) is not immune to exposure to factors such as the fluctuating exchange rate (South African Rand against the US dollar), as well local political instability and natural disasters. Specifically, two issues come to mind, the unrest which started in Kwazulu Natal and spread to other provinces in July. This specifically lead to a sharp increase in transport related insurance (SASRIA) which ultimate gets billed to the final food consumer, i.e. food inflation. Also, recently, from the perspective of natural disasters, we have seen devastating floods resulting from above average rainfall during the previous winter and this summer season, which have caused significant damage to national infrastructure and farms in general. The actual cost of the recent damage is still being calculated but analysts estimate that it could be not less than twenty billion Rands. That is even a conservative estimate.
- Call for efficiency
On the whole, clearly, the burden is on producers themselves to be efficient in terms of what they do by practising different and improved cultivation methods that can save them fertilizer usage and other costs. What’s more, producers must ensure that every nutrient of fertilizer that is put in the soil is used efficiently. That is why NAMPO is very relevant, as it is a platform from which farmers can learn from each other and industry experts on best and improved methods they can apply – i.e. building those critical networks of knowledge, ideas and support.
FRA: In your view, what measures do you suggest the government of South Africa can adopt to mitigate the effects of the scarcity and rising costs of inputs, as well as energy (diesel and electricity) on local grain production?
Dr Taljaard: On providing and ensuring an enabling business environment
The most important part for the government to play is providing and ensuring an enabling environment for the people of the country to do business.
- Roads and rail infrastructure
Currently, the local production capacity is beset by some constraints. First, our transport system and infrastructure (rail and road) are relatively fragile (relatively is the operative word here and must emphasise). As a result, to a large extent, this affects the cost of production. Thus, in terms of transportation, we are not that competitive. It is barely credible to imagine what the situation would be if we (as a country, had to import all the food needed. It would be totally different, even worse.
Road infrastructure such as, highways and main arteries, secondary and tertiary roads, is essential. Most critical currently are secondary and tertiary roads where the inputs and food produced gets transported that was damaged severely by the above average rainfall during the past season.
Furthermore, it is worth mentioning that most critical to grain producers is rail infrastructure under state-owned enterprise, Transnet, which has been used to transport the bulk of agriculture inputs and products in the past. Lamentably, in the past twenty years, we have moved from transporting eighty percent of the grain by rail to below twenty percent. Presently, it is over eighty percent by road and less than twenty by rail.
This has had a massive effect as typically, rail is more efficient and cost effective from two viewpoints. Firstly, it takes trucks off the road, and as a result roads don’t deteriorate prematurely. Additionally, from a cost effective perspective for example, producers can save 150 Rands per tonne on transporting yellow maize by train from the Eastern parts of the Free State, where it is produced, to the port in Durban, where it is exported.
Overall, if the government can fix the mess at Transnet and get the infrastructure working that could go a long way in alleviating the transportation challenges, ultimately reducing food inflation specifically and inflation in general as well.
- Reliable and affordable supply of electricity
One of the most overlooked effects is erratic supply and high cost of electricity. Most concerning is Eskom’s inability to supply affordable and reliable electricity to big facilities in the grain value chain like processing plants and storage operators that are power-intensive. When load shedding occurs, it has a huge impact as they are forced to shut down, incurring loss of efficiency (in critical times) which translates into reduced revenue and/or valuable losses in terms of product quality. This is significantly different to what happens in a household when lights and refrigerators are not working, peak times are critical and back-up systems typically get multiplied by a factor of 10x.
Undoubtedly, one of the areas where urgent intervention is needed is in generation of reliable and affordable (competitive) power.
- Forging private-public partnerships
An avenue worth exploring is forging strong feasible private-public partnerships in areas such as new generation of electricity and management of crucial entities like Transnet. In the long run, this could ensure power supply to industry.
- Tackling corruption and increased accountability
My view is that, to a large degree, most of the challenges we are facing are rooted in corruption. For this reason, I truly believe that, if we can tackle corruption, which results in billions being wasted, we can address these challenges. It’s commonly known and understood that the poorest of the poor, suffers the most as a result.
An efficient administration can forestall frequent unrests that we have been experiencing in recent years. Unrest is symptomatic of administrative failure, mainly poor service delivery of public services.
We need to be more accountable in public money being spent, specifically,? in the current economic environment which calls for prudence in the management of the country’s overburdened revenue sources. There is so much industry (private sector) can do, but we must get government policies to work in this country. The challenge is not the policies but the implementation, which is, hopefully, an area we can address.
FRA: What immediate interventions could be adopted to ensure food security?
Dr Taljaard:
At the outset, let me state that I support immediate interventions by the government. However, my take is that we need interventions that won’t beget unintended consequences. Some populist interventions in operations of a free market can backfire.
The key aspect is that we need to let the FREE market operate itself, as business market forces dictate. As mentioned, Government needs to create and ensure an enabling environment for the private sector to thrive and spur economic growth – for all. However, it can only intervene as and when necessary, i.e., in the case of market failures for example.
As already stated, of course, the generation of reliable and affordable electricity, as well as robust transport infrastructure are urgent. And let me reiterate that the government must take a lead in this area. In general, trust needs to be restored, such that (the crucially needed) local investment can thrive.
Finally, most importantly, another area where we need the government to be proactive is managing the causes and mitigating the effects of climate change. This area has a direct bearing on food production. The devastating floods in Kwazulu Natal have shown us that it is a reality. The absence of climate related crop insurance (as safety net) poses a significant challenge and threatens the long term sustainability of competitive local food production. Climate change is not really statistics. It is physics at play, and the world has to buckle up.
FRA: What particular opportunities do you see emerging for grain producers in South Africa from the adoption of technology?
Dr Taljaard: As already mentioned with the fertilizer example, one of the biggest opportunities (but actually a must) readily available for local grain producers, I would call it ‘a low-hanging fruit’, is striving to be more globally competitive, more efficient. If they do everything right and keep adopting and improving, agricultural producers can offset the current challenges and become more profitable.
- Adopting technology
Adopting technology should be considered as one of the “must win” areas to be explored. Indeed, the initial cost of technology adopting may be significantly and high, hence producers need to be business savvy when “roaming” in this field. However, taking the long-term view, there are numerous advantages that help to cover costs and increase efficiencies.
Where they find the cost prohibitive, producers can work together to share ownership of machinery. Specifically, when we look at the size of producers, big producers with surplus capacity can help small producers. This can help reduce losses and forge crucial small business collaboration and ventures.
At the end of the day, the ball is entirely in the producers’ court to make the most at their disposal.
As Grain SA we are also playing our part in many aspects. We are collaborating with industry on a Passport System for grain producers for example. Using such a system, producers may in the future be able to verify or clarify or confirm the registration details of specific production inputs they want to use instantly in their planning process.
The onus is on farmers. They have to be open-minded, take a long-term view on the value and benefits they can get.
FRA: What is Grain SA’s role in increasing the capacity of grain production?
Dr Taljaard: The key focus for Grain SA is helping producers – big and small (commercial, emerging, developing) remain sustainable and more profitable. One of the primary ways we do this is facilitating the building and maintenance of relationships in terms of the value chain from input suppliers, traders and processors and manufactures and obviously government.
Some of the avenues where the whole value chain can benefit from includes opportunities generated from working (closer) together as a value chain, as well as risk-sharing for bigger businesses. Due to the size, bigger businesses can share some and have a appetite for risk.
Constantly, stakeholders, through NAMPO, always seek answers to the following questions: How can we help producers to benefit? How can we put those ideas into creative and innovative business solutions?
Through NAMPO, we aspire to be thought-leaders and platform providers in new systems and ways of improving production. One of the elements we would like to explore is the system of outcomes-based input cost. The system could allow a supplier to price a product-based on the yield of the produce, as opposed to what they currently do these days per litre and tonne – i.e., sharing in the value chain risk.
FRA: What else can you inform our readers (who are also your stakeholders) about NAMPO 2022?
Dr Taljaard : This year’s event is a milestone, considering it is returning after a two-year hiatus related to the COVID-19 hard lockdown. The ability to bounce back affirms that NAMPO 2022 is more relevant than ever. It has gone from strength to strength from humble beginnings.
NAMPO was started in the late 1960s by three farmers as a forum where they realise the need to get together and look at demonstrations of agricultural machinery. It is a platform where relationships can be built and strengthened where discussions and idea(s)-exchange are happening. Also, stakeholders can discuss challenges and source new solutions from others. Someone can get a new idea on how to improve their business. Producers can get knowledge about new equipment and suppliers, in addition to innovative entrepreneurs developing new technologies. All in all, it is a valuable network, learning and sharing opportunity.
Let me reiterate that producers have to view the myriad of challenges they are facing as an opportunity to embrace methods that will make their businesses more efficient and hence sustainable.
Grain SA’s NAMPO Harvest Day, the biggest agricultural show in the Southern hemisphere, is, after a two-year hiatus, ready to present a showstopper outside Bothaville from 16-20 May 2022. For the first time in history – NAMPO will be presented over 5-days!
The interview also appeared in the Farmers Review Africa May/June 2022 edition
