RV Price Avg. price per ton: R4 209.94 D'Factor: 0.400022 August 2019

Economic Research

Increasingly as farming operations become more complicated, with diversification and changes to farm business enterprise structures, simply gathering costs from surveys and financial statements has ecome more difficult.

INTERNATIONAL BENCHMARKING

SA Canegrowers Association has taken part in the agribenchmark network through the South African partner the Bureau for Food and Agricultural Policy (BFAP) since 2012. Economic Research at SA Canegrowers has recently been involved in a project with BFAP to strengthen the output of the Large-Scale Growers (LSG) Cost Survey data by building Typical Farm models for the South Coast, Midlands, Zululand (small-scale farm) and Mpumalanga regions. SA Canegrowers has been collecting and analysing grower’s costs since its inception in 1932/33. Growers cost data in the initial survey was captured from 1926/27. This collection of data has formed the backbone of the organisation over the last 90 years. The costs of growing sugarcane are collected, analysed and published to effectively represent growers at industry, government and other stakeholder levels. As was done in 1932/33 the costs of growing cane were used to determine the level of protection from imports the government needed to afford the industry, this is as important now as it was then. The LSG Cost Survey has changed over time as farming processes and systems change. Another issue has been the response rates to the survey with SA Canegrowers always having to put in significant effort with growers to submit their surveys and other data for the survey. Increasingly as farming operations become more complicated, with diversification and changes to farm business enterprise structures, simply gathering costs from surveys and financial statements has become more difficult. Therefore, SA Canegrowers explored alternatives to strengthen the LSG cost survey data. 

These surveys are critical to ensure SA Canegrowers has the best possible data and information to protect growers’ interests in the industry.

Figure 1 shows the most recent model farm that has been added to the network from South Africa, namely the Midlands farm called ZA250MDL. Economic Research has been involved in a project with BFAP to strengthen the output of the LSG Cost Survey data by building Typical Farm models for the South Coast, Midlands, Zululand and Mpumalanga regions. Draft results show the RV yield differences between farms, with greater RV yields achieved by the Midlands typical farm and irrigated typical farm in Malalane, compared to the dryland farms on the North and South Coast.

Figure 2 shows three indices, CPI and calculated indices of Farm Input Costs and an RV Price index. These indices show the rate of change of the RV price and input costs over time. The input costs have grown at a much greater rate to the RV price from 2000/01 to 2018/19. This means that growers have to become more effi cient in their production and use less input to create more output. This is not only a problem in the sugar industry but is an issue throughout agriculture. The adoption of technology which reduces costs and increases yield as well as sound well researched management practices are ways in which growers can remain profi table and sustainable into the future.

Figure 3 shows the direct farm costs, operating costs and other expenditure per hectare for the new Typical Farms developed for the South Coast, Midlands and the North Coast.
Figure 4 shows the profi tability of the Typical Farms for the 2016 season. The South Coast and Midlands farms were profi table in the long term with the Gross Revenue exceeding the opportunity cost. However, the North Coast farm, although able to meet its cash costs in the medium term, had an uncertain future.
Figure 5 shows the time series profi tability analysis of the North Coast Typical Farm which was established in 2012. Three of the fi ve seasons analysed showed the farm was not sustainable in the long term. The 2014 season shows that Gross Revenue was so low that cash costs could not be met. These results were confirmed for the fi nancial year under review, by growers who were trying to get back to a profi table position after the severe drought and impact of low prices caused by imports.

Figure 6 shows sugarcane growing cost proportions

 

 
INTERNATIONAL AGRIBENCHMARK NETWORK

The international sugar network includes the European sugar beet producers in various countries, Brazil, Thailand, Vietnam, India, Tanzania, Zambia, Mozambique, Kenya and South African industries. New partners from India and Kenya submitted their countries and farming systems in 2018. The sugar network for global benchmarking of sugarcane and sugar beet farms is growing, which is promising. The construction of the typical sugarcane farms forms an integral part of the initiative since it will form the base from where annual updates will commence. The farms are identified, selected and constructed according to the standard operating procedure (SOP) as developed by the international agribenchmark center. Atypical farm refers to an existing farm or data set describing the most likely expectation for a specific region which represents a major share of annual production further characterised by a typical production system which reflects the prevailing combination of land, capital and labour resources. 

The process includes three phases;
1. Identification phase of key production regions, their respective farm structure and key features describing the farm,
2. Data collection where a pre-panel approach is anticipated and
3. Processing and validations of constructed farms

 
2018/19 SEASON HIGHLIGHTS

2016/17 LSG Cost and Labour Surveys

Economic Research successfully completed the 2016/17 LSG Cost and Labour Productivity surveys. These surveys are critical to ensure SA Canegrowers has the best possible data and information to protect growers’ interests in the industry. The data contributes to a multitude of work done by Economic Research through submissions to proposed government policy, NERSA hearings on electricity tariff increases and importantly the import tariff submission to the DTI. The following results are from the final audited 2016/17 Large- Scale Grower Cost Survey:

  • Real (inflation adjusted) Revenue increased by 22% than the previous year
  • Real operating expenditure increased by 12% compared to the previous season 
  • Leading to a significant improvement of Real Earnings Before Interest Tax and Depreciation (EBITD) increasing by 67% from R1950.22/ha to R3266.16/ha (back to similar levels of the 2013/14 season)
  • Increases to the major cost items were 4%, 20%, 5%, 37% for Farm Staff, Chemicals, Fertiliser and Mechanical Maintenance respectively
     
GROWER SUSTAINABILITY

The costs of farming continue to increase on an annual basis. Recently there have been increases in fuel of 24% and the implementation of the National Minimum Wage has pushed wages up in agriculture by 11%. These are all cost increases way above inflation.

VAT FLAT RATE FOR SMALL-SCALE GROWERS

The Economic Research Department VAT Flat Rate Calculations were audited by Ernst & Young and on the 25 July, 2018 the final report on the audit was received. A clean audit of the method and calculation was achieved. The 2018/19 season SSG VAT Flat Rate for non-VAT Vendors is R49.15 per ton of sugarcane. This represents a 11.4% increase in the VAT Flat Rate compared to the previous season. The sugar industry with the assistance and guidance of SA Canegrowers through data collection and analysis is the only agricultural industry in South Africa that ensures that non-VAT Vendor Registered SSGs receive VAT back for the inputs purchased to produce their sugarcane.

IMPORT TARIFF APPLICATION

The LSG Labour and Cost Surveys are incredibly important for SA Canegrowers to lobby for grower’s interests accurately and effectively. This data formed a crucial part in the submission to ITAC as part of the fast-tracked investigation into the ineffective level of protection from imports that put the industry at risk. SA Canegrowers is the only grower association with a long and credible history of collecting and analysing grower costs going back to 1933. SA Canegrowers Economic Research submitted the average grower cost scenarios to the International Trade Administration Commission (ITAC) for their review of the DBRP on which the import tariff is based from the original level of $566 to $680 per ton. Therefore, directly adding value to growers’ sugarcane businesses.

ECONOMIC RESEARCH PAPERS & CONTRIBUTIONS

The following papers were written, submitted or presented at the South African Sugar Technologists Association Congress (SASTA) 2018:

  • Typical Farm Models: A Methodology to Benchmark South African Sugarcane farms locally and internationally - Nicholson RJ, van der Westhuizen D and Gouse M 
  • Youth in Agriculture: Securing the future of Sugarcane farming in South Africa - Dube S and Nicholson RJ
  • A collaborative effort between government and the private sector to reduce heavy vehicle overloading in the South African Sugar Industry: 2006 to 2017 - Mashile GK, Kadwa M, Lyne PWL and Giles RC 
  • Back to Basics: A decision support tool to improve sugarcane grower sustainability - Gillham W, Kadwa M, Small B and Koekemoer EB
  • Quantifying the benefit of early season chemical ripening at a mill scale - case study of commercial sugarcane fields in the Umzimkulu supply area - Kadwa M and Small B
 

SA Canegrowers is tbe only grower association with a long and credible history of collecting and analysing grower costs going back to 1933.