Livestock is the top commodity industry in South Africa’s agriculture sector, it accounts for 49,8% of the country’s total agriculture gross producer value (GPV), says Paul Makube, Senior Agricultural economist at FNB Agri-Business.
Makube adds that the other main commodity industries are horticulture and field crops with 27,1% and 23,1%, respectively in 2017.
If you are looking for a business opportunity in the agriculture sector, here’s what you should know:
The Industry’s Value
In 2017, the gross value of production (in the agriculture sector) was R266.63 billion with a total debt of R158.34 billion, according to Makube.
Makube says that in the livestock market, the poultry industry made the largest contribution to the agriculture GPV with 16.2%, followed by the beef industry with 13.2% in 2017.
He adds that primary agriculture and agribusiness sectors are closer to 15% of GDP and that agro-processing, for example, has become bigger and currently weighting 25.8% of total manufacturing and about 3.5% of GDP.
Business Opportunities
Makube advises that you assess gaps in the provision of services particularly up the value chain in agro-processing.
Besides primary (farming) production and agro-processing, there are a broad range of other services (business opportunities) you can provide, which include:
- Logistics
- Consulting (for example, a labour relations expert can draft a labour relations policy for a farming business)
- Provision of equipment (repairs, parts, rental)
- Contractors
- Marketing services (packaging, distribution)
- Regulatory services (auditing, quality assurance etc)
- Farming services (fencing, IT services etc).
Set Up Costs
Makube says the setup costs are different according to sector and size and scale of operation. “Dairy and poultry for example are expensive. To set up it’s R4 million per unit. This includes housing and equipment. With piggeries, for example, there are machines involved.
“Primary processing is more prohibited, because of the technology involved, so it’s more expensive,” says Makube. He adds that it’s expensive because you have to rely on getting the parts from the primary supplier to get the parts to the machinery.
Makube does not give the costs of farming nuts and fruit, but he says the costs are huge. “(You need) several hectares of trees. The cost is huge in terms of the cost of land where you must plant. Plus, the income streams come in three or four years later.
“Strawberries, for example, have a high value cost, because you have to maintain it, have cooling technologies, which can be challenging.”
According to Makube, livestock like cattle is not expensive. “A cow and calf on average could cost R 10 000 per animal. It depends on the breed and also the supply and demand.”
He adds that farms are limited, saying starting a business in agriculture depends on collateral and it depends on the size of the operation. “If you do agro-processing you cannot go small.”
Industry Challenges
According to Makube, the industry challenges include:
- Major policy and regulatory uncertainty such as Expropriation Without Compensation, water rights, tariffs, access to markets and finance.
- Volatility in production due to climate.
- Access to collateral (land as security).
- High barriers of entry due to lack of own contribution/ equity.
- High input costs relative to the value of land (cost of production and implements can exceed value of land).
Support and Training
Makube says that both commercial banks (the big four) and development finance institutions such as the LandBank and the Industrial Development Corporation provide a variety of finance products for the sector. Several agriculture cooperatives provide direct financing to farmers, for example, AFGRI, Suidwes Landbou, BKB, and NWK Limited.
Available training could be done formally and informally by universities and agriculture colleges. Co-ops also provides some support in the areas they serve.
