Buying groups bid to cut farming costs

14 November 2010 - 02:00 By LUCKY BIYASE

Farmers, facing rising input costs and falling commodity prices, are forming buying groups to benefit from bulk discounts.

Willie du Plessis, the director of agricultural banking at Standard Bank, said this was an efficient way for farmers to reduce costs.

"Apart from the fact that discounts to a buying group will be better than those made to individuals, using buying groups also saves individual farmers the time of hunting around for reasonable prices," he said.

It was also attractive to suppliers.

"This means that suppliers are likely to approach buying groups with good offers, and this again comes in handy in cutting the time needed to find good products at good prices.

"It gives a lending institution an extra level of comfort when its customers demonstrate positive financial management.

"Buying groups are not useful when the type of agricultural operations in a district differ or when the number of farmers in the buying group does not have the necessary volume to encourage discounts."

Lindie Stroebel, manager of economic intelligence and finance at the Agricultural Business Chamber, said: "I think it's good, as it increases their buying power. They should just be careful that they are not contravening Competition Commission regulations. I think it is a win-win situation because, on the supplier side, it reduces transaction costs. It means fewer transactions and more customers," he said.

Andre Jooste, senior general manager at the National Agricultural Marketing Council (NAMC), said: "I think buying groups are innovative mechanisms, but obviously it will depend on the type of input that farmers want to buy at the time. These may be good if farmers want to buy inputs such as fertilisers and pesticides. But if they want to buy equipment such as tractors, it may be difficult, because usually farmers do not need the same equipment at the same time," said Jooste.

Dawie Maree, an economist at AgriSA, said it was a revival of the old co-operative system, which could work with a lot of planning, but only with like-minded farmers.

"For instance, if it's five neighbouring grain farmers wanting to buy inputs, they can negotiate big discounts. But I don't see this working between a dairy farmer and a game farmer, because they use different inputs," said Maree.

"It is a matter of planning. Five neighbouring farmers can share one harvester if the co-ordination is right. They do not need to buy five harvesters."

According to the NAMC's input cost monitor, since the beginning of this year, the diesel price has risen 8.95% and now represents more than 40% of typical transport operating costs, excluding overhead expenses and toll fees for large-payload, long-distance vehicles.

According to SA Agricultural Machinery (SAMA) figures, tractor sales for the year are approximately 12% down.

SAMA chairman Lane Reynolds said:"Until such time as it rains, farmers will hold back on their purchases of capital equipment. Farmers are being asked to plant less maize this season, so some of this land will be planted to other crops. Although some of the fundamentals in the market, such as crop prices and the weather, are negative, there is still cautious optimism among industry players."