1. SOME
KEY STATISTICS ON FARMING IN SOUTH AFRICA:
1.1 The number of commercial farmers has
dropped to some 50 000. This is the
lowest level for more than a
century.
1.2 Close to 70% of farmers have an annual
turnover of less than R1 million. The majority are small-scale farmers,
who are usually grossly undercapitalised in this capital-intensive industry.
1.3 The debt-to-income ratio in agriculture
is currently at an all-time high of 38%+. Bankruptcies are bound to
rocket if this ratio rises.
1.4 Net earnings in agriculture have dropped
from R110 per hectare in 1990 to about R80
per hectare in 2000. In real terms, the
drop in net farming income was some 5,3%
per annum in the past decade.
1.5 About 11% of farmers are part-time
farmers (defined by the fact that they earn more than 50% of their operating income outside agriculture).
1.6 More than half of the total number of
farmers are engaged in mixed-farming activities
to reduce their risk exposure to a volatile market and extreme climatic variations.
1.7 The effective agricultural subsidy in South Africa is about 4%, compared with 1% in New Zealand, 45% in Europe and 53% in Japan.
2. GAME
RANCHING (ECO-TOURISM)
The eco-tourism industry accounts for at least R1
billion in value added. Its indirect
multiplier effect (in industries such as airlines, taxidermy, 4x4 trails,
outdoor equipment and hotels) is of a roughly similar size, which implies that
the total turnover in this market segment is about R2 billion. There is a huge potential for further growth
in eco-tourism on game ranches, mainly because its market share of the total tourism industry is relatively small in South
Africa. Not surprisingly, the game-ranching
industry has been expanding at a rate of about 5% per annum in real terms
during the past decade. Very small game
ranches struggle to break even, and the larger ranches have to work hard to
obtain a return of some 10% per annum on the capital invested. Current income typically fluctuates between
R1 million for a medium-sized ranch to R4 million for the large game ranches and
even to more than R10 million if the game ranch concentrates on
eco-tourism. Operating expenditure
varies between R400 000 for a medium-sized ranch and some R700 000 for a large
ranch. More generally, the net operating
margin fluctuates between 50 and 75%, depending on the size of the ranch and
the region.
A small game ranch with a game equivalent of say 150
LSUs is not profitable in a commercial sense, although it may still give the
owner sufficient psychological returns.
The owner of such a smaller ranch is typically a “gentlemen-farmer” in
pursuit of quality of life”. A small
ranch could well be profitable depending on game species ranched with. High
value species would have a very positive effect on profitability.
The return on capital invested is about 10% per annum
for a large game ranch specialising in eco-tourism, but this figure could be
increased substantially if tourist demand is supported with sufficient
marketing, both locally and internationally.
In fact, if the occupancy rate could be increased from an average of say
50% to 75% per annum, the return on capital invested per annum would improve by
some 6 percentage points to 16%.
Refer
attached Tables 1 -5.
3. ENABLING
GOVERNMENT INTENT
Recent political announcements and repositioning of
government agencies could well indicate a change in agri-policy.
The following government actions could well have a
positive outcome for live stock farmers as far as para. 1.1 – 1.4 are
concerned.
3.1 Landbank
Changing the reporting relationship of the Landbank
from the Minister of Agriculture to the Minister of Finance is widely welcomed.
3.2 National
Food Control Agency
The establishment of a National Food Control Agency
would create a more structured and permanent government agency focussing on the
whole food supply chain, rather than
fixing farm produce prices.
It appears that the intent for the National Food
Control Agency is to (i) increase
agri-production, (ii) enable South
Africa to once again be a net agri
exporter of food and should (i) and (ii) be successful that this would
result in bringing down food prices.
This implies that farmers should receive such value (profit margin) for
their products so as to ensure new entrants into the sector.
Monitoring the whole
food supply chain would dictate looking at the distribution practices
including the retail market and not only farm gate prices and fixing same.
3.3 Food
security a global commodity
International trade and subsidies distortions will
receive intensified focus.
The African Union this month also concluded that 10%
of a country’s budget should be allocated to agriculture. Currently, South Africa’s is only 3%.
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Table 1: Profitability of game ranching (150, 600 and
1 000 LSU capacity)
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|
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Hunting
ranches
Grasslands
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|
150 LSU’s
|
600 LSU’s
|
1 000
LSU’s
|
|
Gross Operating Income
Harvest of game
Accommodation & other income
Gross Operating Expenditure
Staff costs
Catering costs
Maintenance costs
Depreciation
Capital Investments
Land & fencing
Game
Buildings & infrastructure
Vehicles
Net Operating Profit Before Tax:
Net Operating
Profit
Total Investments
Made
Net Operating
Margin
Return on Capital
|
285 823
128 323
157 500
137 714
35 000
21 000
45 000
36 714
2 518 602
1 407 846
650 756
285 000
175 000
148 109
2 518 602
51,8%
5,9%
|
1 381 093
751 093
630 000
464 879
95 000
84 000
180 000
105 879
10 050 971
3 979 478
4 616 498
880 000
575 000
916 214
10 050 971
66,3%
9,1%
|
2 286 822
1 251 822
1 035 000
734 809
145 000
138 000
300 000
151 809
15 018 909
5 024 746
7 694 163
1 550 000
750 000
1 552 013
15 018 909
67,9%
10,3%
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Table 2: Profitability of cattle farming (150, 600
and 1 000 LSU capacity)
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|
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Cattle
farming
Grasslands
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|
150 LSU’s
|
600 LSU’s
|
1 000
LSU’s
|
|
Gross Operating Income
Harvest of livestock
Other income
Gross Operating Expenditure
Staff costs
Maintenance costs
Depreciation
Capital Investments
Land & fencing
Livestock
Buildings & infrastructure
Vehicles
Net Operating Profit Before Tax:
Net Operating
Profit
Total Investments
Made
Net Operating
Margin
Return on Capital
|
192 000
192 000
-
151 948
35 000
90 000
26 948
1 637 879
702 879
600 000
160 000
175 000
40 052
1 637 879
20,9%
2,4%
|
768 000
768 000
-
549 730
105 000
360 000
84 730
5 910 757
2 365 757
2 400 000
570 000
575 000
218 270
5 910 757
28,4%
3,7%
|
1 280 000
1 280 000
-
863 125
145 000
600 000
118 125
9 190 631
3 465 631
4 000 000
975 000
750 000
416 875
9 190 631
32,6%
4,5%
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