The impact of rising costs on agriculture in South Africa John Purchase Undercover Farming Expo 6 March 2013
Global demographics Source: Absa
Supermarket phenomenon Retailers, the Giants of the Chains, and Powerful - Wal-Mart sold 337 billion worth of food from 8400 stores in 15 countries in 2010. Carrefour & Tesco next. - Concentration (Top 20) down from 23,4% (2003) to 21% (2010) - Private versus retailers labels/brands - Neighbourhood concept: proximity & convenience - Powerful: Information about consumers - Supply chains incredibly important: Internationalisation - Move to Green Economy, Fair Trade, Smallholder procurement, increased convenience, tasting areas, etc. - Shopping experience: Lock-in customers Source: Marcos Fava Neves
BRICS to drive Modern Retail growth 2006 2010 2014Forecast Rank Country bn Rank Country bn Rank Country bn 1 US 612 1 US 638 1 China 761 2 China 328 2 China 529 2 US 745 3 Japan 297 3 Japan 345 3 India 448 4 France 206 4 India 279 4 Japan 360 5 India 190 5 France 205 5 Russia 322 6 UK 188 6 Russia 186 6 Brazil 284 7 Germany 150 7 Brazil 185 7 France 228 8 Italy 127 8 UK 170 8 UK 198 9 Russia 116 9 Germany 160 9 Germany 168 10 Mexico 112 10 Italy 130 10 Indonesia 167 2,326 2,827 3,681 Note: 2014F is calculated using fixed exchange rates based on the average rates of 2009 from www.oanda.com(01.01.09 to 07.12.09). Source: IGD Research, December 2009
Global resources: Arable land Source: Absa
Rising Land Prices Make Land in Some Land rental prices for 3 t/ha oilseeds, 2009 Countries Attractive 500 Index of land prices (1980=100) USA (Iowa) Argentina Rent ($/ha) 450 400 Uruguay 350 300 Iowa 250 200 Brazil (MG) Ukraine Mozambique Nonmarket 0 200 400 600 150 100 50 0
Suitable Land for Expansion but Concentrated in a Few Countries 700 600 500 Sudan, C ongo,, Mozam Madag, Zambia FAO potential of 2.7 M ha More realistic is 450 M ha Based on land that is not forested or protected 400 Brazil, Argen Russia 300 Potential additional area Current area 2005 200 Austr 100 0 SS Africa Latin America E. Europe & CA E and S Asia MENA Australia Rest of world Source: World Bank and IIASA
Regions with Land Scarcity also face Water Scarcity 80 70 Percent of population facing absolute water scarcity 60 50 40 30 Series1 20 10 - Source: IWMI
Energy ESKOM Electricity Price increases April 2008: 27,5% April 2009: 31,3% April 2010: 24,8% April 2011: 25,8% April 2012: 25,8% April 2013-2017: 8% pa granted for 5 years On-farm electricity generation?
Fuel prices Price trends for Crude oil and fuel from December 2006 to December 2012: Crude oil: 74.5 % increase Petrol: 103.6 % increase Diesel: 100.5 % increase Price trends for Crude oil and fuel from December 2011 to December 2012: Crude oil: 0.3 % increase Petrol: 12.7 % increase Diesel: 8.6 % increase Crude oil (US$ $/barrel) 160 140 120 100 80 60 40 20 0 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Source: NAMC, 2013 Crude oil Petrol 95 ULP Gauteng Diesel 0.05% S Gauteng Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 13 12 11 10 9 8 7 6 5 Fuel price (R/litr re)
International price trends for selected fertilisers Price trends for international fertilisers and R/$ exchange rate from December 2006 to December 2012: Urea: 94.1 % increase DAP: 131.1 % increase MOP: 207.5 % increase R/$: 23.7 % depreciation Price trends for international fertilisers and R/$ exchange rate from December 2011 to December 2012: Urea: 8.3 % increase DAP: 13.7 % decrease MOP: 0.1 % increase R/$: 5.7 % depreciation Jan 2005 = 100 Fertilizer index 1200 1000 800 600 400 200 0 Urea Di-Ammonium Phosphate (DAP) Muriate of Potash (MOP) Dec Mar- Jun-07 Sep Dec Mar- Jun-08 Sep Dec Mar- Jun-09 Sep Dec Mar- Jun-10 Sep Dec Mar- Jun-11 Sep Dec Mar- Jun-12 Sep Dec 185 170 155 140 125 110 95 n 2005 = 100 R/$ index Ja Source: NAMC, 2013
Local price trends for selected fertilisers Price trends for international fertilisers and R/$ exchange rate from December 2006 to December 2012: Urea: 94.1 % increase DAP: 131.1 % increase MOP: 207.5 % increase R/$: 23.7 % depreciation Price trends for international fertilisers and R/$ exchange rate from December 2011 to December 2012: Urea: 8.3 % increase DAP: 13.7 % decrease MOP: 0.1 % increase R/$: 5.7 % depreciation = 100 Index January 2005 550 500 450 400 350 300 250 200 150 100 50 De MAP Urea Potassium Chloride Apr Au De Apr Au De Apr Au De Apr Au De Apr Au De Apr Au De Source: NAMC, 2013
Vehicle costs over time for different sized vehicles Vehicle costs trends from 2004 to 2012: Rand 1500000 1.1. 2-axle vehicle Capitol cost: 18.4 % increase Fixed cost: 37.8 % increase Running cost: 126.4 % increase 6-axle vehicle Capitol cost: 38.3 % increase Fixed cost: 53.3 % increase Running cost: 133 % increase 7-axle vehicle Capitol cost: 40.4 % increase Fixed cost: 57.5 % increase 1000000 500000 0 Rand 5000000 4000000 3000000 2000000 1000000 0 Rand 5000000 4000000 3000000 2000000 1000000 0 Capital Cost Fixed Cost Running Cost 2004 2005 2006 2007 2008 2009 2010 2011 2012 1.2.3. Capital Cost Fixed Cost Running Cost 2004 2005 2006 2007 2008 2009 2010 2011 2012 1.2.2.2. 2004 Capital Cost Fixed Cost Running Cost 2005 2006 2007 2008 2009 2010 2011 2012 Running cost: 174.6 % increase Source: Max Braun Consulting Services, 2013
Selected input prices: 3 rd Quarter 2012 vs3 rd Quarter 2011 Source: AMT
Impact of minimum wage on total wage bill With the same number of workers, ag wage bill increases by approx. R2 billion Difficult to calculate exact job losses given various scenarios on productivity gains etc. that still need to be analysed but only on top ten industries an estimated loss of 80 000 jobs could be plausible
Source: AMT Cost curve
SA Food inflation expected to be 9,0% in 2013 (MTBPS, 2012) Source: AMT
FAO Food Price Index
Food Security Imperative Many definitions to food security, but the one we will use is the FAO definition (World Food Summit 1996): A situation that exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.
Components of Food Security FOOD UTILISATION Nutritional Value Social value Food safety FOOD ACCESS Affordability Allocation Preference Purchasing power key to access Food Security FOOD AVAILABILITY Production Distribution Exchange/trade Stability over TIME Complex concept: Difficult to measure and evaluate.
Conclusion Huge global food demand driving demand for scarcer resources - driving resource/input prices up Our sustainability challenge: Produce more with less Technology/innovation critical to overcome cost-price squeeze and improve productivity Need to critically rethink our agriculture, viz. renewable energy; proximity to markets (logistics); water and nitrogen use efficiency; precision, conservation and undercover agriculture, etc.