While a weakening Rand and a smaller crop does
not usually augur well for farmers, those in the
macadamia industry could benefit from what
would otherwise be a bleak season.
Speaking at the Valley Macadamias Group’s farmer’s day in Kiepersol, Mpumalanga, economist Mike Schussler said that now is the time to be in the export industry. “The Rand will continue its decline as a result of political instability. We can expect the currency to sink to R18/$1 during the next two years and after that to R20/$1. It could even reach R25/$1 by 2020.
“My advice to farmers is to increase your profits, don’t flash your cash and factor in expropriation into your plan because it could happen.”
Commenting on the global economy, Schussler said that world growth figures showed that 2015 was the worst year on record. “I am not very hopeful for 2016 as commodity prices are on a downward trend and the commodity index is at a 42 year nominal low. The long term commodity index suggests 15 years of low commodity prices ahead of us.”
However, Alan Sutton, chairperson of the Valley Macadamias Group said that with the recovery of the Chinese market and strong demand from the United States, farmers could expect a slight increase in the dollar price paid for macadamias. “Coupled with the weakening Rand and a smaller supply to the market due to the drought, the market is set to hold with minimal disruptions this year.”
Commenting on the tumultuous market last year, Sutton said that the careful handling of relationships with buyers meant that the market remained intact for the future. “When the Chinese stock market crashed and buyers’ cashflow was reduced, we made the decision not to sue our clients for not honouring their payments for shipped nuts. This delayed the payment to the farmers but it meant that our long standing clients could stay in business and eventually recover from their misfortune.”
But Sutton warned that while prices for the nuts would hold, the stricter quality requirement could still see many farmers falling by the wayside.
Farmer’s will be facing increasingly stricter quality criteria in the future. “One thing became very clear in the market place last year and that is that consumers will no longer accept sub grade nuts. New regulations are also coming into effect this year that will severely impact on the type of nuts that are exported. This means farmers will need to be more thorough during their on farm grading process so that they don’t get penalised at the factory.”
Sutton said that the new regulations could also result in farmers being able to deliver a smaller portion of their crops as quality standards rise to exclude much of what was previously acceptable.
“As the global macadamia crop increases due to new plantings the market will turn from being a farmer’s market to a buyer’s market. This highlights the importance that Valley Macadamias places on building solid, long term relationships with buyers and upholding our reputation as suppliers of quality nuts. But this also means that we need to place a stronger emphasis on our farmers to deliver this quality.”
Sutton noted that while the macadamia industry usually saw a 12% - 15% increase in volume each year due to new trees coming into production, the drought would mostly eliminate any increase. “But this might not be a bad thing as a reduced volume could mean better prices as the supply and demand curve remains favourable for farmers.
“Overall we are expecting a good season with no hiccups in the market place as seen last year,” Sutton said.
Schussler however painted a less rosy picture of the overall climate in South Africa and said that the economy could be in decline going forward. “We are in a perfect storm situation; there is the drought, commodity crash, Rand crash, haphazard governance, too many rules and corruption, rising minimum wages and carbon taxes. We’ve never been in this situation before where there is such an economic slowdown coupled with such high unemployment. We have never had this big a current account deficit with these commodity prices.”
Schussler said that while it looked as if South Africa had reached rock bottom, he doubted that this was the case. “South Africa may enter a recession and it may last more than two quarters. We have unrealistic expectations as a country. We have been lucky so far, but our luck is running low.
“The good news is that the dire economic situation has opened the eyes of the politicians who are starting to become proactive in fixing the problems. The reality is that structural problems are only really addressed when one is under pressure,” he concluded.
For more information:
Lindi van Rooyen-Public Relations
Valley Macadamias Group
Tel: 0824948005