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The maize crisis and why rescuing white farmers is good...

Business Maverick

Business Maverick, Politics

The maize crisis and why rescuing white farmers is good black empowerment policy

South Africa is swimming in maize. For farmers that means a choice, between commercial suicide on the one hand and reaching for the impossible dream of a production cartel on the other. For government the choice is somewhat easier: Allow a globally competitive, export-orientated sector to flourish, providing food security and a modicum of energy independence to boot – or hobble empowerment efforts in the agricultural sector by doing nothing. By PHILLIP DE WET.

Thanks to good rains and improved seed and technology, this year’s maize crop was South Africa’s second biggest ever. And thanks to a strong rand and favourable global weather, maize prices are so low that farmers can barely give the stuff away. At current prices, virtually every maize farmer is losing between R300 and R450 for each ton of maize produced, and between them they produced around 12 million tons. If the same thing happens in 2011 – and there is currently really no reason to believe it won’t – farmers predict that somewhere between a quarter and a third of them will go out of business before the end of that year, even as the country runs out of storage space to hold their produce. That means a disaster in employment next year, but much greater trouble with everything from food security to land redistribution for a long time to follow.

In part the problem was caused by forces of nature – weather and currency. 2010 was supposed to be a drought year, and the prospect of high prices encouraged planting. Except that the El Niño/La Niña cycle didn’t play ball, instead bringing excellent conditions. The rand too was supposed to decline from its strong position in 2009, pushing up prices in the local market, but instead strengthened even further, giving cheaper input costs on the one hand while taking away price support with the other.

So we have too much maize. Way, way too much. Based on historic consumption, a highly accurate measure, South Africa already has half of the maize that will be required during 2011 in silos right now. Farmers could theoretically sell their stock, at a considerable loss, on the international market, but poor infrastructure allows for the export of only a fraction of the crop, and that capacity is declining. Many farmers have bought livestock and set up feedlots, which effectively allows them to turn their maize into meat, but there is a limit to the number of cattle in the country and high demand has reduced availability and increased prices to a point where that is no longer viable.

Farmers, hardly blind to the peril, are trying to find a solution outside of direct government intervention. You’d think that money or price support, whether by way of a bailout or national stockpiling, would be welcome, but you’d be wrong. The almost universally white and almost entirely Afrikaans-speaking farming community has a deep distrust of government intervention, which seems about equal parts ideological and political.

That leaves them with an Opec-like plan to control production. A current mainstream proposal calls for maize farmers to voluntarily plant a minimum of 15% fewer hectares of maize in 2011, while buying a portion of this year’s production on the open market, then pushing both that surplus and their reduced new production back on to the market next year. That, according to the calculations of advocates, will make everyone involved a lot more money than producing to their maximum ability.

If everyone plays along, that is. Like any cartel plan, a minority of producers anticipating a profit due to artificially high prices can easily bring the whole thing tumbling down. Farmers are counting on a combination of Christian values, a sense of brotherhood, enlightened self-interest and community censure to bring other planters in line, but no combination of those has ever proven particularly effective in similar situations. The lure of profit invariably wins.

Photo: Black South African commercial farmer Motsepe Matlala inspects the maize growing on his farm near the small town of Ermelo in Mpumalanga province, February 23, 2006. Reuters.

Can’t all these farmers simply switch to a more profitable crop, as the dead hand of the market is clearly urging them to do? In a word, no. In big parts of the country where maize will grow like a weed, other crops are marginal at best. For other farmers their investment in specialist machinery and the lack of cash to duplicate that for other crops, is the major barrier. Those who can mostly have.

Other initiatives, based on lobbying for indirect government action, show more promise, but only in the longer run. Stopping the decay of rural rail infrastructure and improving port facilities would allow greater export of maize, which would at least get it out of the local market, even if it has to be at a loss in times of globally good crops. Tariff protection for local chicken producers would shield them against cheap imports from especially Brazil, and the extra chickens fed on local maize could eat a ton or two  a year, easily. Supporting the production of ethanol from grain, a reversal of the current official position of discouraging food crops to be used in the making of fuel, could probably soak up all the maize the country could produce, and then some, if the global economy ever recovers enough to regain its thirst for oil.

From a purely agricultural point of view, each of these measures makes sense, but each has its own problems. Protectionist tariffs are contrary to several bilateral agreements and will make it harder to fight massive agricultural subsidies in the first world. The debate on fuel-from-food is far from settled anywhere in the world. Overall, measures designed to support – and eventually hopefully enrich – white farmers are unlikely to go down well within the ruling alliance, or its individual parties, or among the majority of voters. Improving rail infrastructure is just too…. it just can’t… it’s impossible to… Well, actually, there is no earthly reason why the evaporation of the rail infrastructure couldn’t and shouldn’t be reversed urgently. Let’s call that the exception that proves the rule.

But at the same time it is nearly inconceivable that the government could fail to act, and swiftly, because of the sheer breadth of the potential consequences. In the short term, bankrupt farmers means out of work farm workers, and those jobs won’t be coming back. The survival of ever-larger farming corporations when all other producers reach the end of their available credit means ever more labour-efficient farms with ever-greater mechanisation. Once those farmers go out of business, the knowledge and skills their families have gained over generations effectively disappears. Those who don’t take up offers from skills-hungry countries ranging from Georgia to Nigeria aren’t likely to make it back into the fields here either. Then there is the minor matter of anti-anti-competitive regulations; at a time when competition authorities are keen to come down hard on cartels, and have trumpeted action against bread makers as a triumph over those who steal from the poor, it would be hard to turn a blind eye to a maize consortium with the stated goal of artificially upping prices. Not that going to war against bankrupt farmers trying to cling to their land and businesses would be much more palatable.

Two likely outcomes stand out far above these problems, however. Allowing even just one agricultural sector to switch world-class productivity for guarded, limited production, will put at risk the low food inflation that keeps South Africa’s poor fed, could jeopardise future food security even for the richer and will destroy what could be a very lucrative set of export products as the world’s need for staples and demand for protein grows in line with population and wealth.

Then there is the little matter of land redistribution. The government is most upset at the lack of black commercial farmers, to the point where the more populist sort of politicians are touting radical reforms and even the seizure of farms. Right now, though, you’d have to be a damn fool of a black farmer to go anywhere near the maize or related sectors; if you manage to scrape in a profit against all odds, it will be pitiful, and nowhere near a proper reward for the insane level of risk. Unless the risk-reward calculation changes dramatically, there will be virtually no new black entrants into one of the biggest agricultural sectors in the country.

Main photo: A customer leaves with a bag of maize meal at a shop in Soweto south west of Johannesburg, March 23, 2008. REUTERS/Siphiwe Sibeko


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