Your farming business must grow at 3% per year

Growth of 3% per year is a realistic goal for farmers. Businesses must grow to keep up with increasing costs, utilise economies of scale and to afford modern technology, among others

- Dr Koos Coetzee

When Mpumalanga farmer Jan Grey quoted agricultural economist Prof Eckart Kassier’s “Get big or get out” statement in a TV programme, he received many calls from farmers asking about it. This statement is true for all farming operations. The farming enterprise that fails to grow will not survive. There are many reasons for this.

WEAKENING TERMS OF TRADE

Terms of trade is just a clever way of talking about the ratio between agricultural input prices and the prices that farmers receive for their product. In general, we see that this ratio weakens over time. Input prices increase at a faster rate than the prices of farm products.

The Department of Agriculture regularly compiles an index of the prices of farm requisites, while the prices farmers get when they sell their produce are reflected in the agricultural producer price index compiled by Stats SA. These are compared in the graph below.