Belinda Beresford
Punching way above its weight, the agricultural sector in South Africa manages to have a disproportionate effect on the country’s growth figures.
If it hadn’t been for the near 18% fall in agriculture’s contribution, the gross domestic figures for the first quarter of this year would have been a reasonable 1,9%, instead of the dismal 0,9% they were.
But the agricultural sector appears to be charging to the rescue with an expected bumper maize crop that could help propel total growth to more than 3,5%.
Maize contributes about 60% of the agricultural sector. Expectations are for a crop of about 9,2-million tons which would be approximately 50% higher than last year.
A likely result is an exportable surplus of about two-million tons, which, with prices running at about R610/ton, would make a sizeable contribution to the trade balance.
But the days of hauling your crop to market and selling it at a price dependent on local supply and demand are gone. These days South African maize prices are based on export parity prices, the price of selling produce overseas minus the costs of moving it from Johannesburg.
This means local prices are affected by the currency as well as local and international markets. When the rand depreciates it pushes up the price to producers because they are getting more rands for their product.
Agriculture only contributes 4% of GDP. But as Gensec chief economist Jac Laubscher points out: “Agriculture is small but significant because agriculture’s numbers are notoriously volatile in spite of the small weighting.”
One way for farmers to smooth out this volatility is to use the South African Futures Exchange (Safex). Here futures and options in different agricultural products are traded, allowing producers and processors to sell and buy crops for a known price before it is even planted, let alone harvested.
Maize comes in two broad categories – white and yellow. Safex boasts of having the only white maize contracts in the world, since the mighty Chicago Board of Trade bases its prices on yellow product.
It is estimated that up to 20% of maize farmers use Safex, which last year saw the value of its trades equal to three times the total maize crop. The known transfer record was some years ago when one 100-ton lot of maize changed hands 17 times before ending up with the final processor.
South African maize has some advantages. It can attract a premium because it has a lower moisture content and a higher starch content – and because of concerns over genetically modified organisms (GMOs).
“It is easier for us to prove it is from a GMO-free zone than in the States”, said one trader.