Today we are looking at the farming industry, starting with looking at should you farm in South Africa, then some pig farming business models later and then integrated chicken farming which is a popular poultry business model in the US. So stay tuned (or come back) for that.
Should You Farm in South Africa?
TL;DR If you want a quick (and safe) way to make lots of money you shouldn’t farm.
This is not a positive piece in general but you have to mentally prepare yourself for business in South Africa, having a realistic look is far better than a rosy, naive look. You will be better prepared for setbacks.
Is farming profitable in South Africa?
There is a lot of fake news around farming in SA, the vast majority of farmers are not wealthy, they live season to season, they probably own the bank more money than their farms are worth and when the bank calls in the loan they are usually homeless. A major weakness compared to other businesses.
Most of their equipment including their famous Hilux bakkies that their detractors like to moan about are financed.
A lot of the cream in this business is eaten by the middleman (that connect the farmer with the consumer) not just locally but the international markets, we have major players in exporting and marketing our produce overseas.
A lot of farmers have managed to survive by establishing co-ops that have been well run and have turned into major enterprises. You’ll notice in Africa well run co-ops are rare but we have some very good ones which sell everything the farmer needs, equipment, materials, insurance, keeps the profit margins small but most importantly the farmers own shares in the co-op. When the money is circulated in this way they create an ecosystem that leads to prosperity. On its own, with no support (I’ll get to that in a moment). Farming is very hard and is both labour and capital intensive. But can ultimately be a good business if you know what you are doing.
Is small scale farming viable in SA?
The problem with South Africa is that the cost of living (and doing business) is very high. Things needed for farming, water, electricity is not cheap and is unreliable. Access to finance is also hard and expensive. If you going to farm small scale, you need to have buyers and know how much profit you are going to make BEFORE you start farming via a take-off agreement or even a futures contract. You can’t look for buyers after you harvest or slaughter unless you have a busy sales channel or a literally going to put your product on the back of a bakkie and drive to the township. I see small scale farmers make this mistake all the time. That being said, if you have a good qualification, then almost certainly you’ll be better off finding a 9-5 job.
The sweet spot
There are sweet spots in South Africa’s agricultural industry where things are easier and requires less experience than running a mega farm but also not as a small scale farmer. We will look at that in future.
When deciding on a business you have to research the business and the larger industry it is in (the microenvironment), then you look at the macro environment (the country you operating in and the international landscape), to give you a picture of that business, the opportunities and the threats. Once you got that picture before starting a business you have to look at the individual – you and – your suitability for that business (because you now know that what that business is all about).
I will start in the opposite direction I will start by looking at the individual and the temperament required for business, then I will look at the international landscape then I will look at the local environment.
This page is light on actual business but looks more at the individual, micro and macro conditions. For farming business ideas click here.
A person’s or animal’s nature, especially as it permanently affects their behaviour.
When looking at suitability for starting a business I use a framework called “Effection Theory” which looks at the following:
Who you are, what you know and who you know (Bird in Hand)
The time, the effort and the money you have at your disposal and can afford to lose (Affordable loss)
Who are you and what do you know
When you researched the industry you would have learnt that farming involved getting up early in the morning, working hard doing physical work in the hot sun or pouring rain and then sleeping late at night. For some people, like if you from the platteland that might be appealing because you have a passion for it, but take me, I grew up in Cape Town, I’m a city guy, I like working in airconditioned/heated offices, socialising, having a drink after work, and enjoying the perks of city life all amenities close by etc. Farming to me sounds like hell on earth. It is not something that I can do because I will give up too quickly because I don’t have the thing that drives people in this industry (passion for farming). If that doesn’t make any sense to you know this: a lot of people who are living in squalor in South Africa are actually landowners and I’m not just talking about the foreigners but many locals from rural areas own land (or have access to land in the case of Ingonyama Trust) but they move to shacks close to the city and work for minimum wage.
Question to ask yourself: Are you passionate about farming? Or do you just want to make a lot of money?
What do you know
Farming requires knowhow because a crop or animals can be wiped out by one mistake along with months (even years) of work in an instant. But I’m asking myself that as I am going through the motions right now. I don’t know farming but I do know business, I know from the price that an apple sells to the consumer the farmer has put in the most effort and made the least money in the supply chain. Logistics and retail are where most of the markup went. Because most farms are so far away from the ultimate consumer farming is like the drug trade, the most money is not in the manufacture but the distribution: warehousing, logistics and retail. Obviously, if you can do everything (vertical integration) then great, but is that even possible considering little to nobody is vertically integrated this way in SA? There are other opportunities in the farming industry that are more profitable with less effort, connecting buyers and sellers, transportation, storage etc.
The international landscape
The threat (importing)
In many countries farming is considered very important to society, farmers are both highly respected and highly subsidised. In some countries, farmers are subsidised to the point where most of the cost is picked up by the government and they are just selling for profit, in some places they even profit off subsidies that is why they can export for next to nothing (which can lead to “dumping“) because farmers get subsidies for every piece of land they own so they will overproduce.
That is why our chicken producers cannot compete with imports and they have to pump chicken full of brine to make it weigh heavier, they are literally competing with producers who are backed up by their governments and not just national governments, in Europe the European Union pays €60 billion (over a trillion rand or R1 097 039 917 200 by today’s exchange rate) a year in subsidies.
In foreign markets, farmers are supported by the government, business and citizens. I’ve spoken already about government help but many businesses charge farmers less and citizens hold farmers dear, they will have events to appreciate them, they will buy products from farmers at markets at a premium, just to show that appreciation. There is a very good clip on the Shark Tank show to illustrate this. The South African government provides little to no help to farmers, you are largely on your own.
Let me tell you something foreign farm subsidies backing your competitors will never go away not just because of the political clout of supporting the respected farmers but because food security is seen as a strategic advantage for countries.
To let your local industry die, then to depend on exports is a very big weakness and can lead to various serious problems (famine, strife) and that is just under normal situations. Just look at Zimbabwe.
The opportunity (exporting)
There are three main advantages that South Africa has: geography, arable land and a weak currency. Because of where we are located in the world, when some things are out of season in other countries they are in season here. This is because of growing seasons when the weather and other conditions suit that crop. We also have arable land, as well as a weak currency compared to the US Dollar, the currency of international trade. That being said, you do need infrastructure to take advantage of large scale opportunities, but like the local industry, there are middle-men that will be between you and the market.
The local environment
There are two main threats to farming in South Africa, politics and crime, some say the two are linked. This is among a slew of other challenges, lack of cheap stable electricity, lack of cheap freight such as rail. South Africa’s macro environment has made farming a very challenging business.
Farming in South Africa has been politicised in a very dangerous manner. This creates problems for any business that is targeted in such a way. South Africa is probably the only country in the world where the government sees and paints farmers and threats and refuse to help them. In South Africa “land” has been used as a political tool but what is the goal of this really? If we wanted to distribute land we can do it today the government is sitting so much unused land they can subdivide it and give everybody over 18 a piece of land. The problem with that is it would make things real and the land issue is not supposed to be realised. It is a political scapegoat akin to Donald Trump’s wall it is just meant to rile people but it’s a thing that will not be resolved as long as the current dispensation is in power but it’s useful as a scapegoat of government corruption and incompetence, a way for them to say “look that is the cause of your problems”. Remember they went from blaming statues, eventually, people woke up and said “but statues are no threat to us”. Then the government blamed Jan van Riebeeck and Cecil John Rhodes for South Africa’s problems and the people woke up and said “those guys have been dead for centuries they are not a threat to us” and now the government has pointed to farmers and said, “that is your enemy, they took what belonged to you, they the reason you poor”. That is a significant threat to business in this industry and that goes across the race barrier, it does not matter what your skin colour is.
Farm crime is often in the news, South Africa has a high crime rate, and farmers are isolated and sitting ducks for ruthless criminals. Farm attacks often end in murder. But is this really out of the norm? I don’t think so, I just think they have better lobby. In South Africa there are around 60 murders a day – every day. If you must document every murder, you will notice that the vast majority happen in townships, Cape Flats, Khayelitsha, Port Elizabeth’s Northern Areas etc.
Is farm crime political?
It is too difficult to say for sure, some may be or it can just be another day in South Africa. Why do I say this? Because farmers of all races are killed.
You probably thinking this is a negative piece, it is actually a realistic piece. If you want useless fluff you come to the wrong place. Now that you know what to prepare yourself for. Next we look at making money.
Photo credit: Anaya Katlego