Income and Cost Budgets for Summer Crops
2019/2020 season

Area coverage

Table 1.1 and Table 1.2 indicates the area of coverage and include the dryland and irrigated crops. The source of data and collaborators are also included.

Yield assumptions

Figure 1.1 and Figure 1.2 present the yield assumptions for dryland and irrigated crops. The assumptions represent target yields where the respective crop input allocation is based on achieving the stipulated target yields. The target yields were determined in a round table discussion with industry experts.

Crop price assumptions

Annually, the Bureau for Food and Agricultural Policy (BFAP) publishes an outlook on agricultural production, consumption, prices and trade in South Africa over a 10-year period. The information presented is based on assumptions about a range of economic, technological, environmental, political, institutional, and social factors. The outlook is generated by the BFAP system of linked models. One of the most important assumptions is that normal weather conditions will prevail in South Africa and around the world; therefore, yields grow constantly over the baseline as technology improves. Assumptions regarding the outlook of macroeconomic conditions are based on a combination of projections developed by the International Monetary Fund (IMF), the World Bank and the Bureau for Economic Research (BER) at Stellenbosch University. Baseline projections for world commodity markets were generated by FAPRI at the University of Missouri. Once the critical assumptions are captured in the BFAP system of models, the Outlook for all commodities is simulated within a closed system of equations. This implies that, for example, any shocks in the grain sector are transmitted to the livestock sector and vice versa. Therefore, for each commodity, important components of supply and demand are identified, after which an equilibrium is established through balance sheet principles by equalling total demand to total supply.

Figure 1.3 illustrates the key commodity price assumptions for white maize, yellow maize, sorghum, sunflower and soybeans that were used in the summer crop budgets for the 2019/20 production season. Further deductions were made to calculate a farm gate price for each agro-ecological producing region. The sensitivity analysis in the respective crop budgets makes provision for variation in price and yield and indicates the gross margin under each price and yield combination.

Input cost trends and assumptions

The cost of agricultural inputs in general, is expected to increase marginally over the period from 2018/19 to 2019/20 compared to the previous period. For this period, it is projected that the cost for herbicides will increase by more or less 8.0%, fertiliser by 2.1% and seed on average by 2.4%. This is seen as a relief for producers, followed by rapid increases in the cost of production over the period from 2017/18 to 2018/19 where double digits input cost inflation have been reported.

Figure 1.4 illustrates the cost trends for fuel and fertilisers over the period from January 2017 to September 2019. Figure 1.5 presents a cost index for seed, fertilisers, plant protection, fuel and maintenance. The base was set at 2008/09=100 which allows to compare cost trends among inputs. The graph suggests that the cost of pesticides and maintenance relative to other inputs has increased at a faster rate over the stipulated period.

Methodology, approach and definitions

• A standard operating procedure was used across all crops and regions for generating the cost and income budgets for the 2019/20 production season.
• Deterministic or targeted yields were based on industry discussions which refers to a yield that should be obtained given a normal production season with normal weather in the respective agro-ecological production regions.
• The farm gate price for each crop was calculated by deducting transport differential, grade differential, handling fees, commission and levies (statutory) from the simulated SAFEX price.
• The gross production value is then calculated by multiplying the yield with the farm gate price.
• The direct costs are calculated by multiplying the cost per unit by the estimated quantity of input use or application rate.
• For the majority of the crops, it was assumed that own machinery was used, except for speciality operations that is coupled with economies of scale. In such cases, a contracting cost item was allocated. For all crops, provision was made for hail insurance.
• Fertiliser and lime application will vary significantly in regions and across crops, however, an attempt was made to follow a standardised approach across the regions. Micro-elements and foliar feed for selective crops are included in the total fertiliser cost.
• Fuel consumption is based on the prevalence production system in each region.
• For plant protection, herbicide, insecticide and fungicides are accounted for based on interaction with industry experts and producers. For instance, in certain regions provision was made for fungicide sprays, but for others where the practise is not common, fungicides were excluded from plant protection costs.
• Repairs and maintenance costs are calculated based on the production system operations.
• For seed, an assumption was made in terms of the majority of crop type area that is cultivated in each region. For instance, the cost of maize seed in Northern-Natal, Mpumalanga and Eastern Free State is based on the assumption that the majority of the area under maize cultivation is yellow maize whereas for the western producing regions, white maize was assumed. An average seed price across various seed companies was used for 1) conventional seeds and 2) GM-technology. The cost of seed per hectare is calculated by multiplying the cost per unit (either kilograms or plant population) by the application rate per hectare. For selective crops, seed treatment was included where relevant. For predominantly oilseeds production, the seed application rate was sub-divided according to own and purchased seed. For own seed use, a cost was also allocated which is based on a realistic crop price (hence, opportunity cost) and seed preparation costs such as sifting and treatment.
• For irrigated crops, the cost of water and electricity was calculated according to typical irrigation application rates at their respective regional costs per millimetre. For instance, variations will occur in the cost for water in areas where predominantly boreholes are used compared to irrigation/water scheme areas.
• The gross margin was calculated by subtracting the direct cost from the gross production value.