Crash in Farm Profitability from Business as Usual Approach
Last week with much excitement we broke the shackles of Covid and for the first time since 2019 the 2022 Landbou Weekblad Regenerative Agriculture Conferences took place. Once again the small maize belt towns of Reitz and Ottosdal became the focus of the latest research and experimentation in the field of regenerative production.
The theme of the conferences was Cover Crops but so much else was discussed and on display.
There were amazing highs
- A trial field of maize, that looked no different from the adjacent trial, that was grown without any synthetic fertilisation.
- An Ultra High Density Grazing system was shown to be improving the diversity of the veld.
- The soil carbon content of a trial area increased from 0.8% to 2.8% in only 4 years.
And terrifying lows
- The analysis by economists of our grain production showing the looming crisis that will befall us in a business as usual scenario. At a farm level the massive financial losses (bankruptcy) and at a national level the associated crisis for food security and balance of trade.
The rest of this blog is going to focus on the latter and how crucial it is for farmers, financiers and government to engage with this crisis right now. The research was conducted by Asset Research and presented by their resource economist Mary Maluleke. The data was gathered from various sources including on farm trials in Mpumalanga, the Maluti region of the Free State and North West Province.
The modelling was conducted on a farms systems basis and it compared Conventional Tillage (CT) vs Conservation Agriculture (CA) vs Regenerative Agriculture (RA). The model was conducted over a 30 year period on a farm of 1000 ha with 600 ha being cropping and the remaining 400 being veld and the results presented as Cumulative After Tax Profits.
Various assumptions were made separating the RA system from the other two, the following four are the most significant. Many of these assumptions were challenged by various practitioners at the conference as being conservative but this was intentional.
1. Selling prices - the selling prices of all enterprises were kept the same - i.e. there was no premium for regenerative products.
2. Input prices - this is where the big differences come in. The declining natural capital - soil health and biodiversity loss - combine with rising input costs to really hammer CT and CA. The assumptions were that the input costs in the CT and CA systems would rise by 1% per year and that in the RA system they would only start to decrease after 10 years where they would be at 50% of the initial input costs.
3. Yields - these were kept constant across all systems
4. Capital Replacement - CT & CA every 5 years due to additional use and RA every 6 years
From the graph we can see:
- A terrifying crash in the CA and CT systems - with profits reaching zero within ten years and going downhill from there.
- The RA system drops below the other two systems initially - this is due to the purchase of 300 head of cattle to integrate into the RA system. These cattle can of course be bought over time rather than all in year 2 but this will impact the results.
The crash is caused primarily by the declining natural capital and the rise in input costs. One must also bear in mind that these models were conducted under a 6% inflation scenario, not the reality of what has happened with fertiliser and chemical inputs in recent times. If it were to be remodelled on 2022 fertiliser and chemical costs the difference would be even more stark.
Dr Hendrik Smith, Dr Jaap Knot, Gerrie Trytsman, Mary Maluleke, Prof James Blignaut, Nic van Schalkwyk, Anika de Beer