SA needs new markets for agricultural products

"We are starting to see signs of some African states standing on their own feet in terms of production of agricultural commodities. Zambia for instance has already produced a surplus in the 2009-10 maize production.

"While that country's infrastructure is not yet up to the desired level for exports, its geographical location relative to other African neighbours is more favourable than South Africa," Janovsky said.

Maize market

Kenya was the largest importer of South African maize in 2009, accounting for 62% of the total value of maize exported by SA, according to the data by the National Agricultural Marketing Council and the Department of Agriculture, Forestry and Fisheries.

SA's exports of maize amounted to 3.8 billion rand in 2009, with Kenya contributing 2.3 billion rand.

Providing an outlook for the agricultural sector in 2011, Janovsky said SA farmers' price exposure to the outside world is calculated to be between 60-70%, therefore making them by implication global players in a global market.

No control

"This implies that farmers do not have any control over the following factors like international production trends, international farming subsidies, exchange rates, import and export tariffs," he says.

In 2010, Janovsky points out, the firmer rand has posed some challenges for local producers of wine, meat and other products due to SA's "open border policy".

"They therefore have very little control over price volatility as they are price takers, with an additional exposure to price volatility as prices can swings from import parity to export parity and vice versa dependent on local supply and demand.

"Price volatility therefore has a direct effect on the potential of a farmer to repay his debt, this therefore increases the credit risk of the client. Price volatility risk can however easily be offset by forward, future or derivative instruments," Janovsky.

Cover risk

To mitigate price volatility risk, Janovsky advises producers to engage in forward, future or derivative instruments. He adds that SA farmers should take out insurance products to stave off production risk caused by poor weather conditions such as drought.

On the policy environment, Janovsky said SA farmers are still awaiting clarity about the mechanics of the Land Reform Programme. "Commercial farmers are not necessarily opposed to the idea of land restitution per se but there's some confusion about the interpretation of the policy," he said.

Regarding water quality, Janovsky says government and other stakeholders minimise the potential risks associated with irrigated food crops.

Demand, a positive impact

Looking ahead, he says global warming and demand for food and energy will impact positively on agricultural commodity prices.

"Sentiment around global warming is driving legislature around the world to continuously push for the implementation of so-called carbon friendly legislation.

"As agriculture is the prime beneficiary this type of legislation - due to the ability of plants to extract carbon from the air - new markets will place upward pressure on agricultural commodity prices," he said.