MIDI - Msunduzi Innovation and Development Institute
Posted on Business Day Live, written by Wandile Sihlobo, April 16 2015, 06:45
It is always hard to discuss agricultural issues without reflecting on past experiences. This rings true with many challenges faced by smallholder farmers in SA, particularly market-related ones. Many researchers, government and industry players have identified the need for accessible markets for smallholder farmers, and the government has tried to address this issue without much success.
Given these failed attempts, it is essential to look back to understand how commercial white farmers attained the efficiency they enjoy today. There were many government interventions that benefited them greatly but evidently the use of the single-channel marketing scheme seems to have had a big influence.
This refers to the process in which the government was the main buyer of farm products and a number of commodity control boards existed, such as the maize and wheat boards, which looked after the interest of each commodity’s producer and the food security of the country.
This control resulted in a single fixed market price that was paid to all farmers via the control boards and through co-operatives.
This system started in about 1944 and continued until 1996-97, with some changes through the years. It is important to note that by this time many commercial farmers were already well established. Yet there were few buyers in the market, which led to market power being skewed in favour of the buyers. This resulted in the emergence of co-operatives, giving farmers collective bargaining powers and later playing a critical role as agents of the control boards in purchasing the produce and giving production loans.
The agricultural markets were successfully deregulated in 1996-97 and South African farmers had to participate in the world market under free-market principles. As basic economic theory shows, for the free market to operate effectively, there must be many buyers, sellers, information and a good infrastructure. All these factors were already established in SA and allowed today’s farmers to thrive.
Farmers did very well to emerge from such a protected environment and operate successfully in a free-market environment.
Given the historic data, I am compelled to think of possible interventions that the present government can consider in assisting today’s smallholder farmers. The government has established many such interventions within the Comprehensive Agriculture Support Programme, the Micro Agricultural Financial Institution of SA, recapitalisation funds and many more, aimed at developing smallholder farmers to reach commercial levels.
Yet there has been only limited success. Organised agriculture has also been heavily involved in training many developing farmers, but the gap in market access remains.
Many smallholder farmers farm mostly in former homelands. There are tremendous infrastructure challenges, such as secondary roads and no silos for storage in these areas. Many farmers’ surpluses go to waste or are sold at the market at uncompetitive prices, putting them at a disadvantage even before the next production season starts.
I suggest this with great caution and take cognisance of the reasoning and efforts that went into the deregulation of agricultural markets.
A single-channel scheme has worked and assisted many commercial farmers in the past, giving them guaranteed prices that kept them on the land and helped them develop their skills. A special case for rural smallholder farmers can also provide similar assistance, where the government, instead of channelling money into production skills, can leave the training to organised agriculture and rather implement similar principles of a single-channel scheme.
This scheme can over time be evaluated as farmers start to gain experience and establish competitive market power. In the end, there is no need to teach a man how to sow a soybean if you are not going to show him where the markets are.
• Sihlobo is an economist at Grain SA.