How Industrial Agriculture, Farmer Culture & Desertification are Mining Beef Farmers's Balance Sheets
By Andrew Ardington
This article was first published in the Landbouweekblad on 14 May 2026 - 'n Naderende bankrotskap.
The numbers don't lie: the industrial livestock model is systematically transferring wealth away from farmers. It's time to change or fade away.
Seven years ago I set off on a journey to get a grasp the ecological problems on livestock farms across South Africa. To catalogue failures and successes and work out how we make more successes. What I discovered was a community caught in a pincer movement of ecological and economic problems, in some parts cultural, but largely systemic. Ask most beef producers why they're struggling and they'll talk about the weaner price, the drought, the price of diesel, and the exchange rate. What they're less likely to say — because it requires stepping back far enough to see the whole picture — is that the system in which they operate is broken and if they are not tuned into this it is working against them. Not through conspiracy, but through a combination of the economics of industrial agriculture and the ecological degradation of their soil. The industrial agricultural model, as currently configured, extracts value from the farmer and concentrates it in the hands of input suppliers. The farmer in turn extracts from the land, carrying all the risk, while receiving an ever-shrinking share of the reward. When this is model implemented and financial management consists of a book keeper and an accountant doing annual tax returns bankruptcy looms.
The evidence is wide and damning. Many farmers, who have their record keeping and monthly management accounts sufficiently in order, belong to benchmarking study clubs. The results are not pretty with many of the country's herds not making a profit each year. If farmers who have monthly management accounts and belong to benchmarking study clubs are not making money, the problem is bad and its structural. The reality is that most livestock farmers do not have the financial discipline to submit records to a study club. The average beef enterprise in South Africa makes a profit of around R240/ha, quite scary to contemplate when grazing land rents for between R400 and R800 per hectare. If the average farmer is renting land they are losing money. This is backed up by the average return on investment figure for livestock production being around 3.5%. That is below inflation. That is bleeding out.
This is not a South African phenomenon, Canadian net farm income data, tracked by agricultural analyst Darrin Qualman, tells the same story in a different geography. Since the Green Revolution of the mid-twentieth century, gross farm revenue has climbed steadily — but net farm income has flatlined or declined in real terms. As farm tile rose and rose they retained less profit. The difference between to has gone to agribusiness: the seed companies, chemical manufacturers, equipment dealers, and the suppliers of finance for these external inputs. The farmer has become, in effect, a contract worker on land they nominally own, using money they borrowed at commercial rates to buy inputs at prices set by oligopolistic suppliers, and selling output into markets they cannot influence.
UK studies show that more than 60% of farms are unable to make profit without subsidies. Another study across the US, Canada and Australia by Ranch Management Consultants found similar results with the average return on assets being 1.4% and only the top 20% of farms achieving real returns. When it came to raw numbers this average was skewed by that top 20% as only half of the farms had a positive return on assets.
This all tells the same story, a story of the balance sheets of these farmers being mined, a more technical term is that they are de-capitalising, their capital rather than income is being used to fund the enterprise. The two primary divers of this de-capitalisation are the economics of industrial agriculture — a combination of tight margins and a cost-price squeeze — and the eroding of the natural capital of the farms — the free ecosystem services that land provides a farming enterprise. The latter makes us more dependent on external inputs making the farmer even more vulnerable to the unfavourable economics. Input costs — fuel, fertiliser, feed, animal health products, equipment — rise at rates consistently above general inflation. On the other hand output prices — for most the price of a weaner calf — rise below inflation. The gap widens year on year. The farmer's balance sheet gets squeezed.
Farm equipment is a special case of its own with inflation on farm equipment over the last 40 years being about double the inflation rate. To be fair some of that price increase on equipment is due to improved technology rather than purely inflation. The question we need to ask however is how much is that improved technology adding to the bottom line of the farm. A study was done in the Karoo on the profitability of sheep farms across different operations and over time by Prof Beatrice Conradie. One interesting bit of data that emerged was the cost of farm bakkies. Using lambs rather than Rands as the currency the cost of a bakkie was used to highlight the cost of technology and its contribution to bottom line issue. In 1969 a farm bakkie cost the equivalent of 138 lambs, in 2024 it costs 333 lambs. Admittedly these two bakkies offer two very different driving experiences but from a business perspective you have to ask did this increase in price come with an increase in what the vehicle did for the farm? The answer is no, the ratio between lambs and bakkies simply shifted against the producer.
Coupled with this systemic, financial de-capitalisation of farms, a parallel natural capital de-capitalisation is taking place. Degradation and desertification have eroded the free ecosystem services that are delivered by a parcel of land parcel to the stewards of that land and greater society. As the soil-plant ecosystem degrades its ability to capture sunlight energy and water declines and with that its ability to provide the farmer with free inputs. Of course these are not truly free they are what we pay for land, be that rent, mortgage or opportunity cost. Continuing with Karoo sheep as an example, after the wool boom the government was concerned about the state of land degradation. They introduced subsidies, paying farmers to reduce stocking rates on farms in an attempt to slow the degradation. The degradation did slow, but so did farm income. After a while the subsidies went away but the natural capital had not recovered to the degree where it could provide relief from the cost-price squeeze. Given this double de-capitalisation it is not surprising that so many farmers are farming out.
This is not just a livestock phenomenon. South Africa's maize sector offers a stark illustration of this. Industry data shows that the number of commercial farmers delivering grain to silos halved over a fifteen-year period between 2010 and 2024. Half the farming operations gone. Half the businesses and families supporting the local community gone. These farms were bought up by other farmers and farming companies who are relying on economies of scales to stay in the game. Hoping that size will absorb their overhead burden sufficiently to enable them to stay in business on the wafer-thin margins. However economies of scale buy you time, but they don't solve the underlying problems. Having better economies of scale slows rather than stops the de-capitalisation. Additionally land prices in South Africa have long since decoupled from their value as a means of production. This 'above market price' restricts the option of buying more land to only those with the largest balance sheets and / or alternative incomes.
Fig 2: the loss in the number of maize farmers in South Africa 2010 - 2024
The agricultural financing system compounds the problem. Agricultural lending is effectively risk-free for the lender — all debt is secured against fixed assets, primarily overpriced land. The only investor in primary agriculture is the farmer. The farmer carries 100% of the business risk while the financiers carry very little. This arrangement would be defensible firstly if farmers were equipped with the financial expertise and experience to manage a highly leveraged, low-return business subject to the vagaries of the weather. Secondly were it not for the systemic issues described above. Most farmers are not thus equipped and the systemic issues are real. Business plans are drawn up without planning for adequate profit and return-on-investment. The chances of making a profit if you don't plan for it are pretty slim, a problem that is magnified when operating on debt finance. Despite this reality large sums of money are lent to businesses that don't have the level of financial proficiency required to manage the debt. Cash flows, monthly management accounts, quarterly reports, etc are not part and parcel of their systems.
In beef farming enterprises the best farmers make returns of around 20%. Interest rates are around 15% so if you are in the top ranks you can borrow money to grow your beef business. But the average farmer does not make anything near 15% at an enterprise level meaning they cannot borrow money to fund an expansion in their cattle business. When you add land and other overheads into the equation it looks even less rosy. Unless it is rent farmers often do not include a land cost in their enterprise planning, making profits seem better than they are. Not optimising your return on land means only looking at part of the picture. Borrowing money like this only works if you have a very robust balance sheet, a healthy debt to asset ratio and run a tight ship. Right now we are in the situation where farmers are borrowing from their mortgage (land) to pay their groceries (inputs) because the their income can't cover the groceries.
Looking at an example. Your herd is not making a profit as you don't have enough cows. You decide you are going to borrow R1.5mil to buy in good heifers to build up your herd and make it profitable. You have to use a 100% loan because you don't have the capital and the business is not currently making money. The problems emerge immediately. Firstly it is more then 1.5 years before you have any income from your new heifers so you have to keep R500 000 of the loan aside in order to service the interest and repayments on the loan. Secondly you can only use R1mil to buy heifers, so only 2/3 of what you borrowed is invested in a productive asset, the rest is financing your finance. You will have to farm really well in terms of weaner rates and costs in order for your cumulative cash flow to be positive by year 5. In short the numbers don't crunch.
One thing we frequently hear in the media is how disadvantaged black farmers who don't have title deeds for their land are. Unlike farmers with title they are unable to capitalise their businesses with debt finance and this is one of the main reasons why land distribution has been failing. This opinion is based on the belief that the powers of capitalism work in all situations. Emerging farmers are often given access to land but no capital with which to capitalise the farm - to buy equipment, livestock, and have some working capital to survive till you reach a positive cashflows. The supposed solution is that if they are allowed to access debt to capitalise the business then suddenly there will be success stories everywhere. In order to believe that you have to believe that everything you have read above is a dystopian work of fiction and that the average new farmer is going to be able to make returns greater than the finance charges on the debt that capitalised the business. How in an industry where more than 50% of the incumbents are not making it is a new entrant with limited commercial farming experience, and most likely zero debt-finance experience supposed to make it?
The era of being able to set up a family farm with debt financing ended many decades ago. When farmers were taking home 50 to 70% of total farm revenues this was a possibility but today where they take home a little over 20% it is simply not possible. The average farmer is not making a return on their assets that matches inflation let alone the borrowing rate. Lending people money in those circumstances has to be the very definition of irresponsible lending. Giving people land without the capital to finance it is irresponsible politicking.
Farmers have to view themselves as businesspeople who farm otherwise they will not farm for much longer. If we want to be on our farms in 15 years time then either the system has to change or we have to reduce our dependence on that system. This would of course be a partial reduction — we still need finance, feed, equipment and diesel we just have to consume it in quantities that are healthy for our balance sheet. Systems don't change themselves, the current beneficiaries defend the status quo. The financial de-capitalising of farmers's balance sheets is due to unsustainable profit margins. In short we have to take back some of the blue in Darrin Qualman's graph. The only way we do that is with low input farming — reducing our input costs and improving our financial management and planning. In changing from maximum production thinking to maximum sustainable profit per hectare thinking we move to a planning system that is in favour of the farmer rather than the rest of the value chain. Without primary production there is no rest of the value chain. All new ideas for the farm need to undergo a rigorous cost-benefit analysis and come out of the analysis with a healthy profit in order to be considered (remember of its always easier to farm on paper). Accounts need to become monthly management accounts and cashflow needs to become king.
The second de-capitalisation is our eroded and eroding natural capital. We have to really engage with desertification, take it and its economic impacts on board and plan to turn it around. Unless we are reducing our external input costs by replacing them with regenerated ecosystem services we will be mining our way out of business. Successful regenerative farming has three legs to it — Low input production, Soil-plant ecosystem regeneration & Financial management — and like the proverbial three legged pot you have to have all three in working order. If one leg is broken the good stuff spills onto the fire.