Bad ratios mean difficult times for farmers

Farmers' profitability is in decline, mainly because of external factors, but there are a few strategies that producers can use to limit the effect of the weakening terms of trade,

- Dr Koos Coetzee.

A farmer’s profitability depends on the income earned from selling products and the cost of producing the products to sell. The prices at which products are sold, as well as the prices for the farm requisites and other inputs needed to produce the products, are largely outside the farmer’s control.

The ratio between the price of farm requisites and agricultural products is called the ‘terms of trade’.

Based on the Department of Agriculture, Land Reform and Rural Development indices of agricultural products and of farm requisites, the terms of trade for livestock, horticultural and crop farmers weakened steadily from 2020 to June 2022.

The situation has improved marginally since then. According to Grain SA, fertiliser prices were between 10% and 16% lower in February 2023 than in February 2022.

Diesel fuel prices were 38% higher in March 2023 than in March 2021 and 10% higher than in March 2022.

Load-shedding saw a sharp increase in the use of diesel fuel on-farm as farmers battled to maintain functions.

Interest rates were again increased in March 2023, hopefully for the last time this year.

The gradual weakening of agricultural terms of trade is a normal part of agricultural production and farmers are generally able to adjust.