Farming profitability is determined by both output and input and the management thereof, says FNB’s North-Central Agri Manager, Andre Mouton.
Profitability in grain and animal farming is influenced by input cost management and – as with any business – the effective management of input costs can improve the profits yielded, Mouton adds, advising on the biggest expenses in animal and grain farming and proposing some cost-management measures for farmers in these sectors.
Fertiliser accounts for almost 40 percent of the direct variable costs, followed by fuel at +15 percent, herbicide and pesticides at +11 percent and seed at +10 percent. These, of course, will differ according to the commodity being produced, expected yield and whether it is in dry or irrigated land. In livestock production, the greatest expenditure is in feed and health costs.
In Namibia, the livestock sector is mainly an extensive farming operation making feed cost highly correlated with rainfall, which is out of the control of the farmer, says Mouton. The farmer can manage this cost by managing the risk of grazing shortages and by proactively adjusting the cattle numbers to reflect the available grazing, he says. He advises that the production system should also suit the area where the farm is located, as the more variable the rainfall, the more flexible the farming system should be.
“We would like to give some advice as to what farmers can do better to manage the expenditure,” says Mouton.
Grain farmers should adopt a sustainable purchasing strategy for fertiliser and herbicides, together these account for over 30 percent of production costs. About 80 percent of fertiliser and some herbicides and pesticides are imported and therefore subject to fluctuations in the rand/US dollar exchange rate and international prices. If one adds fuel to the mix, which means the farmer has no influence on prices of close to 49 percent of production inputs. Consider the use of solar power to reduce energy cost as a long-term investment.
“A prudent application of fertiliser/herbicide/pesticides is required at the right time, in the correct type and quantities. It also means regular soil tests, practising conservation agriculture and adoption of genetically modified (GM) crops that in turn help lower the reliance on pesticides and herbicides,” explains Mouton, adding that livestock requires an improvement in feed conversion ratios and a smart grain procurement policy, which considers the high price volatility.”
Mouton says the last few years have been tough, with the country experiencing some of the worst droughts in some parts. Grain prices in neighbouring South Africa – from where Namibia imports – skyrocketed and squeezed margins in the poultry, pork and feedlot industries. South Africa and Namibia also had a fall armyworm invasion. All of which put a squeeze on production, sales and, of course, profit margins.
About the rule of thumb to be kept to guarantee a sustainable farming business even in tough times, Mouton recommends a sound business and financial plan implemented and augmented from time to time to address the immediate and new risks.
“Like any business, profitability is increased by also managing spend better. A noble idea would be to sit with a financial planner, who can assist with a range of financial products to address individual and business needs. And, as with any business, farmers should also save and invest where they can to have a buffer in tough times,” he concludes.