South African agriculture experiences productivity increase

South Africa's agricultural industry, from farmers to equipment suppliers, bounced back last year and showed a 24% profitability increase, the third PricewaterhouseCoopers agri-business benchmarking survey has revealed.

The rise was mainly the result of increased turnovers and improved management styles. Larger plantings due to optimism about expected higher prices of key crops contributed to the rise in turnover of trade items (27%), parts (28%), implements (43%), and grain transactions (67%).

The survey, released on January 30, covers the 2007 financial year and was compiled from responses from 21 businesses and co-operatives with a combined annual turnover of R20,5bn ($3 billion).

Among the respondents were those companies that supply input and services to the agriculture industry.

Kobie Bekker, PricewaterhouseCoopers’ agribusiness expert, said the increased buoyancy was linked to a rise in normal sales due to economic expectations and an increase in the prices of commodities.

He said while stocks were still low worldwide, producers expected a significant increase in commodity prices. Two years ago there was an oversupply of maize nationally and lower plantings resulted in lower stock levels. As a direct result of this, and because of increased demand from the US for biofuels and drought in Australia, there was optimism among local producers. The one downside in SA was an unfortunate drought in the northern grain producing areas.

Bekker said the survey supplied practical information to enable agricultural businesses to compare operating results among themselves and extend their knowledge of business conditions.
He said the results indicated the use of improved management techniques by agricultural businesses, which was apparent particularly from the improved cash position in which the sector found itself.

Bekker said the most risky asset, debtors, had been more strictly controlled. The total turnover increased 51% in what was “a highly competitive industry,” and debtors rose only 19%.

Bekker said the cash flow of agriculture in general should improve due to low world stock levels of grain, as long as harvests and the most significant exchange rates remain normal.

However, business confidence remained impaired by key local issues such as land reform, “which is not showing progress,” and the production price index, “which has hopefully reached its highest turning point.”

He said the focus by the sector on black economic empowerment was “in general” positive, with pressure to transform increasingly arising from the agricultural value chain.

Business Day