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Area coverage

Table 1.1 and Table 1.2 provides an overview of the area of coverage for dryland and irrigated summer crops in South Africa's key agro-ecological producing regions. The coordinators of this initiative are sincerely grateful for the interaction and assistance with data, knowledge and other inputs from each organisation, agribusiness and farmers.

Model Assumptions

The Bureau for Food and Agricultural Policy (BFAP) annually provides a baseline outlook on agricultural production, consumption, prices, and trade in South Africa over a 10-year horizon. This outlook is developed using the BFAP system of models and is grounded in a coherent set of assumptions regarding a range of economic, technological, environmental, political, institutional, and social factors. Among these critical assumptions, one of the most significant is the expectation that stable weather conditions will prevail in Southern Africa and globally, allowing for consistent yield growth as technology advances. Therefore, the outlook is not a forecast but rather a plausible future scenario based on fundamental market drivers. It serves as a projection of a potential future equilibrium, providing a benchmark against which further analyses can be evaluated.

The assumptions regarding the future macroeconomic environment are based on a combination of projections from the International Monetary Fund (IMF), the World Bank, and the Bureau for Economic Research (BER) at Stellenbosch University. Baseline projections for global commodity markets are sourced from the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri and the Food and Agriculture Organization (FAO) of the United Nations. Once these assumptions are integrated into the BFAP system of models, the outlook for all commodities is simulated within a closed system of equations. This process captures the interconnections between sectors—so that, for instance, shocks in the grain sector are transmitted to the livestock sector, and vice versa. For each commodity, key components of supply and demand are identified, and equilibrium is established through balance sheet principles, ensuring that total demand equals total supply.

Yield assumptions

Figure 1.1 and Figure 1.2 indicate the yield assumptions for dryland and irrigated crops. These assumptions represent target yields which were formulated in round table discussions. These levels are based on crop potential in the respective regions, historic trends and expert opinions. It is important to note that intra- regional variations will occur, and it is recommended that producers adjust their target yields based on their location and potential.

Crop price assumptions

Figure 1.3 illustrates the key commodity price assumptions for white maize and yellow maize, sorghum, sunflower and soybeans that were used in the summer crop budgets for the 2024/25 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.

Key input cost trends

Figure 1.4 illustrates the cost trends for fuel and fertilisers over the period from January 2021 to September 2024. Input costs have declined following the Covid-19 pandemic and the Russia-Ukrainian war, but not to their pre-disruption levels, as fertilisers and herbicides remain between 35-58% higher than 2019 levels.

Following a 48% surge in 2022, fuel prices have only seen a modest decline of 7% over 2023 and 2024. The cost of fuel remains closely tied to crude oil prices, which have stayed elevated due to production cuts by OPEC+ in response to limited demand. This reduced demand has been further impacted by several factors, including the conflict in the Middle East, a decline in Chinese imports due to weaker economic performance, a potential rise in Indian imports, and the growing uncertainty around U.S. summer crops due to intensifying hurricanes. According to the latest report from the energy agency, global oil demand is projected to slow in the coming years as investments in electric and energy-efficient vehicles increase (The Economic Times, 2024).

Figure 1.5 presents an overview of the average year-on-year (calendar) percentage changes for key agricultural inputs over the period from 2022 to 2025 (estimate). The figure also highlights the sharp rise in energy, fertilizer, and chemical costs in 2022, followed by a more gradual decline in 2023 and 2024. While these costs are expected to continue decreasing in 2025, they are projected to remain elevated compared to 2019 levels.

Although minimum wage and electricity costs did not experience as dramatic an increase in 2022, they have continued to trend upward, exceeding CPI inflation and, in some cases, surpassing the cost of imported agricultural inputs. Additionally, Eskom has recently applied for a 36% tariff increase, set to take effect in April 2025, pending a decision by NERSA.

For the first time since 2021, the exchange rate is expected to improve, with the Rand strengthening due to South Africa's positive economic outlook, influenced by the formation of a Government of National Unity and a weakening U.S. dollar, potentially triggered by monetary easing by the Federal Reserve Bank. While this could reduce the cost of imported inputs, it may negatively impact domestic crop prices. Moreover, ongoing disruptions in the Red Sea – particularly recent attacks on vessels near Yemen and escalating tensions – are affecting shipping routes and driving up freight rates, which could further increase the cost of imported goods.

Methodology, approach and definitions

• A standard operating procedure was used across all crops and regions for generating the cost and income budgets for the 2024/25 production season.
• Deterministic or target 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 for seed breeding and technology) from the simulated SAFEX price. For white and yellow maize, industry averages for grade discounts were used to calculate grade differentials.
• 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.
• The price for fertiliser nutrients (N, P & K) was calculated by using a weighted approach that accounts for 1) variation in discounts received from suppliers and 2) the time period when fertilisers were purchased.
• Fuel consumption is based on the prevalence production system in each region. The fuel price does not take agricultural rebate into account.
• 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.