Prevailing uncertainties in the sugar industries necessitate a relook at the farming business, its future, and mitigation factors that can be put in place today to ensure the future of the enterprise tomorrow.
The past few years in the sugar industry have been characterised by lower prices, and reduced yields due to drought, and increasing input prices, causing many farmers to question the viability of farming with sugar. While the crop has its challenges, finding ways to mitigate the risks could make the difference between sinking or swimming.
Speaking at the recent Laeveld Agrochem Seil Safari conference, Prof Johan Willemse, agricultural economist and director at Agri Technovation, encouraged farmers to work around their problems. “Don’t wait for things to change – they are not going to. Focus on what you can manage and be careful what you base your decisions on. Don’t make decisions based on hearsay or negative talk around the braai. Anyone will go backwards if they keep focusing on negativity. Success comes from a positive attitude.”
He told delegates that with a complex South African political landscape making the farming industry uncertain, it was easy to become side-tracked, but that farmers should remember their goals and what they were working towards. “Don’t get stuck on the drama, details and problems. When they crop up, go back to what you are working towards and what your goals are. Be careful what you keep yourself busy with.”
Willemse said that to stay on track it was important that every farmer have a plan and a clear vision for the farm. This should be shared with the whole farming operation to ensure everyone understands what they are working towards. “This might entail difficult discussions with family, but it needs to be done to find a cohesive plan everyone is on board with,” he said.
“The plan needs to include the competitive ‘sweet spot’ between profit, innovation and productivity. Ultimately profitability is the main goal so farmers must find a way to produce more with less.”
The right strategy
Willemse advised farmers to do a SWOT analysis of the business to find new opportunities and ensure risk mitigation plans were in place. “Look at the longer-term view and find gaps where you can make money out of the changes that occur. Manage your risks by looking at what you have at your disposal and what your strengths and weaknesses are. Pay attention to your environment to see what is going on and then decide where you are going and where the opportunities are.”
He cautioned that the farming environment was cyclical, constantly moving up and down. “Few things are ever just going down or just going up, so understand what cycle you are in and what the right move is. For this reason it is important to create a reserve fund in the good years to get you through the bad years. Drought is also cyclical and there will be dry years so you need to make provision for it.
“You also need to consider the changing climate and if what you are planting is still the right crop for the region. Being able to change and adapt is paramount to a successful farming business.”
Noting the impact of climate change, Prof Ferdi Meyer, director for the Bureau of Food and Agricultural Policy, said one of the biggest challenges facing sugar farmers was below-average yields. “Local sugar farmers can’t compete with the Brazilians because our yields are too low. There will always be a pocket of production in South Africa as there is in the irrigation regions on the North Coast, but the other coastal areas are likely to go out of production because the climate and soils are not optimally suited, resulting in lower yields. We can’t keep up with the global trend in yields and low cost per hectare.
“The climate is changing to such an extent that sugar might not be a viable crop and farmers need to start looking at diversification. Komatipoort could see a shift to sub-tropical fruits and macadamia nuts, for example.”
He emphasised the importance of allowing sugar to be used for electricity generation and biofuels. “This is what will lift the industry. But for biofuel production to be possible there would need to be offtake agreements with fuel companies at fair prices to make it viable.”
Meyer suggested that farmers reduce marginal hectares. “The more the farmers supply surpluses to the mills, the more we have to export and the lower the price they receive because the world market price is lower than in South Africa. But if government gets on board with electricity generation and mandatory biofuel blending, the surpluses will be welcome.”
Hope on the horizon
Charl Senekal, South Africa’s largest private sugar producer, said that while the sugar market was under pressure, plans were being put in place to see the industry return to its prominent position on the agricultural landscape. “There is a great opportunity for this industry to assist government in meeting its electricity generation demands. Furthermore, there are plans to use sugar for biofuels and cane fibre to make products usually made from plastic.
“These plans will keep the sugar industry sustainable. The next year or two will be difficult but farmers need to push through to reap the benefits going forward.”
Senekal said sugar prices were already starting to rise slightly on the world market and there was a possibility prices could be slightly better this year than last. “In five years’ time we should be one of the best agricultural products in South Africa – there are a lot of people with the right expertise driving the industry in the right direction.”
Meyer noted the importance that policy shifts made in agricultural commodity prices. “A policy change to allow for maize to be used for biofuels in China caused a big demand for that commodity, leading to higher prices. So too did a shift in economics create more demand for chicken and meat in India and China. While commodity prices have consistently declined over the years, there have been blips caused by these policy and economic shifts.”
Senekal said that while circumstances in the industry were difficult, farmers needed to find innovative ways to keep their heads above water. However, he warned against ill thought through decisions. “There is much talk about mechanised harvesting, but at this stage we are still at break-even point, compared with manual labour.”
Willemse noted the importance of economies of scale in maintaining profitability. “Whoever can produce a product for the cheapest amount will make the most money and be in business the longest. So you either need scale or you need to consider how to add value or create a niche product from your crop that will fetch a premium. The farms that are struggling are mostly those in the middle range: either go bigger or go niche.”
He cited a study in Australia where researchers tried to determine why there were such big differences in profitability between farms producing the same crop. “They found the difference lies in having a passion for what you do, being prepared for change, having a plan, and being resilient.
“If you have a clear goal then that is what you will work towards and find ways to motivate others in working with you to reach that goal. There are always opportunities: decide what your strengths are and get the job done.”
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