According to Dr Dirk Strydom, Grain SA’s manager for grain economy and marketing, South Africa’s producers are technologically advanced, but lack marketing prowess. However, marketing opportunities abound, particularly in the volatile free market system. He spoke to Annelie Coleman.
Why do you think SA grain producers lack skill in marketing their products?
It’s more a case of a lack of confidence. Marketing in agriculture is not easy, as you are working with a product that is a commodity, so market forces will always play a role. This means that one side of the value chain has many sellers, and the other side has only a few buyers.
The most important thing to remember is that agriculture is reliant on weather, which can change the risk very quickly.
One should also keep in mind that up until 1995, the grain market was regulated, and farmers could focus solely on production, not marketing. The advent of a free market system meant that they had to deal with both aspects.
Newer farmers, who had not been in the industry before free market principles were implemented, tend to cope better with marketing in a free market system. They are schooled to market their produce using current systems.
How can producers mitigate the effects of the expected 2017 maize surplus?
The current marketing mechanism is the financial instrument market, where producers can sell their commodities in the future. Thus a producer can sell the commodity in December for delivery in July the following year. This allows producers to fix a price using various methods available on the South African Futures Exchange (Safex).
Nevertheless, there is risk involved. Should a producer not deliver the fixed amount, he will be obliged either to pay a penalty or buy the commodity from somewhere else and deliver it to cover the shortfall.
What are the marketing mechanisms available to local producers, and how do they work?
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