More predictions for agriculture, 2013-14

Two important presentations have been given on agriculture in the past days:

• Marc Sadler, head of Agriculture Risk Management at the World Bank gave a presentation Investing in agriculture is not a lottery – understanding the risks and managing them “whatever the weather” at the Agriculture Investment Summit Europe 2013. Find it here.
• Ernst Janovsky, head of Absa Agribusiness, presented his Agri commodity and food price outlook which can be found on the website of South Africa's Agricultural Business Chamber (Agbiz), or click here.

Discussing the Janovsky presentation in their 11 July newsletter, Lindie Stroebel of Agbiz writes:

"The cost of production remains the most concerning issue ... cost of production increases faster than producer prices. The only solution to the problem is to become more productive and efficient. Technology is again the only option to increasing productivity. This includes storage, transport, information, biological and genetic technology, as well as economies of scale. Resource limitations reinforce the need for improved technology.

"Commodity prices are expected to remain flat and will not drive food prices higher. Farmers are, unfortunately, going to absorb the cost increases and will probably experience lower margins in the immediate future. Food prices will be driven by the exchange rate risk, energy prices and labour cost. In the longer run, the stronger demand will have a recovering effect on producer prices".

Stroebel summarises Agbiz' position in three points:

1. When related to the positive agribusiness confidence, the outlook highlights the underlying long term opportunities the industry holds, provided the right approach to address the challenges is adopted.

2. There are a number of exogenous factors impacting negatively on investment, such as significant political and policy uncertainty, the cost effect of the weak and volatile exchange rate, dependency on energy and labour demands:

• Investment will be slow and reluctant until after the elections in 2014.
• The uncertainties created by certain policy developments, such as the restitution of land rights amendment bill, the expropriation bill, the property valuation bill, carbon tax, etc., are causing reluctance to invest.
• The weak exchange rate benefits the export industry, but in the long run has a detrimental effect on investment and cost of production.
• SA is a huge importer of energy and as agriculture is a massive utiliser of energy, at all different levels of the value chain, alternative local sources and more energy efficient operations should be incorporated to minimise the cost effect on the economy as a whole.
• Outrageous labour demands are a serious cost driver and influencer on the investment climate. Solutions should be found and implemented to address the social needs in the country whilst nurturing the business prospects, especially in agribusiness, as it has food security at stake. 

3. The ultimate solution lies in increased efficiencies, through optimised utilisation of resources (both natural and human) and incorporation of technology. We depend on investments in and incorporation of relevant technologies to bring about the yields and productivity gains recorded in other parts of the world, and to decrease the cost of doing business.

We remind the visitor of the AMT Outlook Conference on the 30 September, which we covered in the blog "Event Notification: AMT South African Agricultural Outlook Conference - 30 September 2013'