Input cost monitor: The story of Maize and

Wheat
July 2008
FOREWORD

Since 2002, when exchange rate depreciation resulted in rising prices for most agricultural commodities and inputs, as well as retail
food prices, there has been increasing interest in the behaviour of agricultural prices. This, for example, led to the establishment of a
Food Price Monitoring Initiative by the National Agricultural Marketing Council (NAMC), and the publication of quarterly reports on
changes in food prices. It was however also realised that it is important to monitor and disseminate information on changes in
agricultural input costs. In August 2006 a workshop was convened with stakeholders in the agricultural sector from which it emerged
that input cost monitoring would be a welcome addition to ongoing research on changes in agricultural related prices. At this
workshop the NAMC was mandated to coordinate input cost monitoring on behalf of the whole agricultural industry. The NAMC has
since taken up this activity in collaboration with various branches of the agricultural industry. Input cost monitoring, together with
food price monitoring, now form part of two of the NAMC’s key research themes namely, agro-food chain analysis and market
information systems.

The purpose of input cost monitoring is to publish trends in farm input costs on a regular basis. This report provides broad trends in
input costs for grains, more specifically the maize and wheat industry (note that trends in most input cost items are also applicable to
other grains).

In this report the following issues are reported: (i) broad trends in input cost movements for the grain industry, (ii) the contribution of
different variable input costs to total variable input cost of maize and wheat and (iii) trends in individual input cost items.

A comparison of price indices (price movements of outputs and

The purpose of input
cost monitoring is to
publish trends in
farm input costs on a
regular basis. This
report focuses on
grains and more
specifically on maize
and wheat.
Trends from 1990 to
2007:
inputs) of maize and wheat
Figure 1 shows trends for different input and output price indices from 1990 to
2007. From the graph it is noticeable that the Producer Price Indices for Maize
(PPI-Maize), Wheat (PPI-Wheat), all field crops (PPI-Field crops) and All
Agricultural Products (PPI-Total) showed much more variability since 2001 than
the All Farming Requisites Index (FRPI-Total). Such variability brings about
uncertainty and risk that affects farmers’ decisions to plant and invest, and hence
also affects supply.
The PPI-Maize and
280
PPI-Wheat 260
increased by 415.1 240
and 353.9 percent, 220
respectively, from 200
180
1990 to 2007 whilst
2000=100

160
the PPI-Field crops 140
PPI-Maize: 415.1%.
and PPI-Total 120
increased by 348.1 100
PPI-Wheat: 353.9% 80
and 309.5 percent, 60
respectively. 40
PPI-Field crops: 20
During the same 0
348.1% period, the FRPI-
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

Total increased by
PPI-Total: 309.5%. 301.6 percent.
FRPI-Total PPI-Total PPI-Field crops PPI-Maize PPI-Wheat

FRPI-Total: 301.6%.
Figure 1: Comparison of various Price Indices, 1990 to
20071
Source: DoA, 2008.

1
See Appendix A for definitions of different price indices.
1
 Note should be taken that most of the inputs included in the FRPI-Total
The trend in the PPI
increased substantially in late 2007 and early 2008. This is highlighted later
for output is much in the report.
more variable than
for input costs. The Figure 2 shows trends in the PPI-Maize and PPI-Wheat and selected intermediate
inputs from 1990 to 2007 (note intermediate inputs are part of the overall FRPI-
result is much more
Total). The intermediate inputs included are fertiliser, fuel, animal health and crop
variability in farm
protection, maintenance and repairs and farm feed.
profits.
All the indices show an increasing trend over the depicted period. The PPI-Maize
and PPI-Wheat shows higher variability (particularly from 2001 onwards)
Trends from 1990 to compared to the
2007: other price indices
280
depicted. The 260
PPI-Maize: 415.1%. variability in the 240
PPI of Maize and 220
200
Wheat were,
PPI-Wheat: 353.9% 180
amongst other 160
2000=100

factors, due to 140

Fertiliser: 429.6%. exchange rate 120
100
fluctuations and 80
Fuel: 534.3%. the demand and 60
40
supply situation in
20
Animal health and the maize and 0
wheat industries2.
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007
crop protection:
Overall, the result
184%. was much more PPI-Maize PPI-Wheat
variability in farm Fertiliser Fuel
Maintenance & profits and also Farm feed Animal health and crop protection
variability in Maintenance and repairs
repairs: 294.1%.
supply.
Figure 2: Trends in the PPI-Maize and PPI-Wheat versus
Farm Feed: 298.1%. selected intermediate inputs
Source: DoA, 2008.

Contribution of different variable input cost items to total variable

input cost of maize

The main focus of this section is on the variable costs for maize3 and specifically
Fertiliser and lime to express different variable input cost items as a percentage of total variable
contributed more input costs (See Appendix B for the different input cost components included in a
than 20 percent to typical input cost budget for maize). Due to the many different input cost items
total variable input included, their relative contribution to total variable cost and the format in which
cost (between 22 and this information is generally available, it was necessary to aggregate certain
26 percent) of maize variable inputs into an “All other” category (See Appendix C for existing “other
production. cost” and “All other” cost items).

Figure 3 shows the average percentage contribution of selected variable input

costs to total variable input cost in the maize production regions mentioned in
footnote 3. For the period under consideration fertiliser and lime contributed more
than 20 percent to total variable input cost (between 22 and 26 percent).

2
The reader is referred to the Food Price Trend Reports at www.namc.co.za
3
For maize, variable input cost information was available for six summer production areas. These are North-West
Province, North-Western and Eastern Free State, Northern KwaZulu-Natal, and Middelburg and Ermelo in
Mpumalanga.
2
 Maintenance and repairs contributed almost 13 percent and showed a declining
In terms of relative
trend in terms of its
contribution to total relative contribution to
variable input cost total variable input cost. 35

over the last 7 years: Seed cost showed an 30

increase in its relative
25
• Maintenance and contribution to total
repairs showed a variable input cost, while 20

%
downward trend. the cost for herbicides 15
remained more or less
10
five percent of total
• Seed cost showed
variable input cost. 5
an upward trend.
0
Fuel and labour 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
• Herbicides contributed on average
remained more or Fertiliser & Lime Maintenance & Repairs Seed
23 percent to the total
Interest on production credit Herbicides Insecticides and fungicides
less the same. variable input cost. All other Fuel and labour

• Fuel and labour Figure 3: Average % contribution of individual

contributed on variable cost items to total variable
average 23 percent
input cost4
Source: Grain SA, 2008 and own calculations.
to the total
variable input cost. When comparing the variable input cost items per production region for the
2006/07 production season it can be seen from Figure 4 that producers in the
Northern KwaZulu-Natal region have the largest expenditure on fertilisers, i.e.
fertilisers contributed 28.7 percent to total variable input cost, followed by
In Northern Middelburg (Mpumalanga). In the Eastern Free State expenditure on fertilisers
KwaZulu-Natal was the lowest; contributing 20.8 percent to total variable input cost. In Northern
fertiliser and seed KwaZulu-Natal seed expenses as percentage of total variable input cost was the
highest, while it was
expenses as
lowest in the North-West
percentage of 35
Province. Maintenance 30
variable input cost and repair costs as 25
were the highest percentage of total
20
compared to other variable input cost was
%

15
regions. the highest in the North
10
Western Free State and
5
Maintenance and the Eastern Free State,
0
repairs cost was the while it had almost the North West NW Free State Eastern FS Middelburg Northern Ermelo
highest in the North same contribution to Mpumalanga KwaZulu-Natal Mpumalanga

total variable input cost

Western Free State Production area
in the other production
and the Eastern Free Fertiliser & Lime Maintenance & repairs Seed
areas.
State. Interest on production credit Herbicides Insecticides and fungicides
All other Fuel and labour

Figure 4: Comparison of the contribution of

different variable input cost items to
total variable input cost in different
maize production regions (2006/07)
Source: Grain SA, 2008 and own calculations.

4
From 2003/04 for six areas; In 2002/03 for five areas; In 2001/02 for four areas; In 1999/00 for three areas.
The information for 2007/08 was not available during the preparation of this report.
3
The average relative Contribution of different variable input cost items to total variable
contribution of input cost of wheat
selected variable
The main focus of this section is on the variable input costs for wheat, and
input costs to total
specifically to express different variable input cost items as a percentage of total
variable input cost variable input costs (See Appendix B for the different variable input cost
for wheat from components included in a typical input cost budget for wheat). Due to the many
2001/02 to 2006/07 different variable input cost items included, their relative contribution to total
were: variable cost and the format in which this information is generally available, it was
necessary to aggregate certain variable inputs into an “All other” category (See
• Fertilizer and lime Appendix C for existing “All other” cost items).
contributed
between 17 and Figure 5a, 5b, 5c and 5d show the average percentage contribution of selected
variable input costs to total variable input cost in each of the following wheat
26%.
production regions respectively: Southern Cape, Swartland (western part of
• Maintenance and
Western Cape), Western Free State and Eastern Free State. For the period
repairs cost under consideration fertilizer and lime contributed between 17 and 26 percent to
contributed total variable input cost. Maintenance and repairs contributed between 10 and 13
between 10 and percent to total variable input cost. Seed cost contributed between 8 and 10
13%. percent to total variable input cost, while the cost for herbicides were more or less
• Seed cost five percent of total variable input cost. Fuel contributed between 10 and 17
contributed percent and labour between 8 and 12 percent to the total variable input cost.
between 8 and 10%.
• Fuel cost From Figure 5a it is evident that fertiliser and lime contributed the most to total
variable input cost with 22.6 percent during 2006/07 in the Southern Cape
contributed
production region. The contribution of fuel cost to total variable input cost
between 10 and
increased the most from 2001/02 to 2006/07 with 60.7 percent followed by the cost
17%. of pest control with an increase of 39.8 percent.
• Labour cost
30.0
contributed
27.5
between 8 and 12%.
25.0
P ercentage of variable cos ts

22.5
20.0

Change in relative 17.5

15.0
contribution to total
12.5
variable input cost 10.0
from 2001/02 to 7.5
2006/ 07 in the 5.0
2.5
Southern Cape
0.0
(selected items): 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

F uel F ertilis er and lime P ermanent labour

• Fuel: 10.9 to 17.4%.
C rop ins uranc e S eed W eed c ontrol
• Fertiliser & lime: Interes t on produc tion c redit P es t c ontrol A ll other
24.3 to 22.6%.
Figure 5a: Percentage contribution of individual variable cost items to
• Perm. labour: 9.3
total variable input cost (Southern Cape)
to 8.4%. Source: GrainSA, 2008.
• Crop insurance: 3.5
to 1%. Figure 5b shows the contribution of individual variable input cost items to total
• Seed: 12 to 11%. variable input cost in the Swartland production area. The cost of fertiliser and lime
• Weed control: 7.4 contributed the most to total variable cost during the depicted period and varied
to 7.2%. between 22.2 percent in 2001/02 and 26.7 percent during 2006/07. The
• Pest control: 4.4 to contribution of fuel cost to total variable cost increased with 34 percent from
2001/02 to 2006/07.
6.2%.
4
Change in relative 30.0
contribution to total 27.5
variable input cost 25.0

Percentage of variable costs

from 2001/02 to 22.5

2006/07 in the 20.0

17.5
Swartland:
15.0
12.5
• Fuel: 9.1 to 12.2%. 10.0
• Fertiliser & lime: 7.5
25.9 to 26.7%. 5.0
• Perm. labour: 6.5 to 2.5
8.2%. 0.0
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
• Crop insurance: 2.2
Fuel Fertiliser and lime Permanent labour
to 1.6%. Crop insurance Seed Herbicides
• Seed: 10.4 to Repairs and parts Interest on production credit Insecticides and fungicides
All other
12.5%.
• Weed control: 8.6 Figure 5b: Percentage contribution of individual variable cost items to
to 8.3%. total variable input cost (Swartland)
• Pest control: 4.4 to Source: GrainSA, 2008.
6.2%.
Figure 5c shows the contribution of individual variable input cost items to total
variable input cost in the Western Free State production region. The cost of
fertiliser and lime contributed the most to total variable input cost during the
depicted period and varied between 26.4 percent in 2001/02 and 24.5 percent
during 2006/07. The contribution of weed control cost to total variable cost
increased from 1% to 3.5%. The relative contribution of permanent labour
changed from 10% to 7% over the depicted period.

Change in relative
contribution to total 30.0
27.5
variable input cost
P erc entage of v ariable c os ts

25.0
from 2001/02 to 22.5
2006/07 in the 20.0
Western Free State: 17.5
15.0
12.5
• Fuel: 18.3 to 16.3%. 10.0
• Fertiliser & lime: 7.5
5.0
21.6 to 24.5%.
2.5
• Perm. labour: 10 to 0.0
7%. 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
• Crop insurance: 6.5
to 5.1%. F uel F ertilis er and lime P ermanent labour
• Seed: 10.3 to 9.3%. C rop ins uranc e S eed W eed c ontrol
• Weed control: 1 to R epairs and parts Interes t on produc tion c redit A ll other
3.5%.
Figure 5c: Percentage contribution of individual variable cost items to
total variable input cost (Western Free State)
Source: GrainSA, 2008.

Figure 5d shows the contribution of individual variable input cost items to total
variable input cost in the Eastern Free State production area. Fertiliser and lime
contributed the most to total variable input cost with 17.7 percent during 2006, this
5
Change in relative is 5.4 percent lower than the 18.7 percent in 2001/02. The relative contribution of
fuel cost to total variable input cost increased the most from 2001 to 2006 with
contribution to total
29.5%.
variable input cost
from 2001/02 to
2006/07 in the 25.0

P ercentage of variable cos ts

22.5
Eastern Free State:
20.0
17.5
15.0
• Fuel: 12.8 to 16.6%.
12.5
• Fertiliser & lime: 10.0
7.5
18.7 to 17.7%.
5.0
• Perm. labour: 9 to 2.5
10.2%. 0.0
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
• Crop insurance:
13.4 to 7.1%. F uel F ertilis er and lime P ermanent labour
• Seed: 4.2 to 3.9%. C rop ins uranc e S eed W eed c ontrol
R epairs and parts Interes t on produc tion c redit P es t c ontrol
• Weed control: 4.1 A ll other
to 3.5%.
Figure 5d: Percentage contribution of individual variable cost items
• Interest on to total variable input cost (Eastern Free State)
production credit: Source: GrainSA, 2008.
6.5 to 6.3%.
• Pest control: 4.1 to To compare the previous (2006/07), current (2007/08) and forthcoming
3.5%. (2008/09) seasons, the most important variable input cost items in three wheat
production regions are compared. The available data is for the Swartland,
Western Free State and Eastern Free State production regions. The comparisons
are done for fertilizer and lime, fuel, weed control and repairs and parts.

By comparing the fertilizers cost per production region for the 2007/08 and
2008/09 seasons with the 2006/07 production season it can be seen from Figure
Change in the relative 6a that fertilizer and lime makes the largest contribution to total variable cost in the
contribution of Swartland region. In the Swartland region the contribution of fertilizer and lime to
fertilizer and lime total variable input cost
costs to total is expected to increase 45

variable cost from to 39.3 percent in 40

2006/07 to
2008/09. For the 35
Western Free State the
2008/09: 30
relative contribution to 25
total variable input cost
%

• Swartland: 26.7 to is expected to increase

20

15
39.3%. to 35.8 percent. In the
10
• Western Free Eastern Free State the
5
State: 24.5 to relative contribution of
0
35.8%. fertilizers and lime to Fertiliser and lime
• Eastern Free total variable input cost
2006/07 Swartland 2007/08 Swartland 2008/09 Swartland
State: 17.7 to is expected to increase
2006/07 Western Free State 2007/08 Western Free State 2008/09 Western Free State
36.5%.
to 36.5 percent in 2006/07 Eastern Free State 2007/08 Eastern Free State 2008/09 Eastern Free State
2008/09.
Figure 6a: Comparison of the contribution of
fertilizer and lime cost to total variable
input cost in different wheat production
regions 2006/07 to 2008/095
Source: GrainSA, 2008.

5
Note in Figures 6a to 6d 2007/08 and 2008/09 budget figures were used and not final production cost figures.
6
 By comparing the fuel cost per production region for the 2007/08 and 2008/09
Change in the relative
seasons with the 2006/07 production season it can be seen from Figure 6b that
fuel cost makes the smallest contribution to total variable input cost in the
contribution of fuel
Swartland region. In the Swartland region the relative contribution of fuel is
costs to total expected to decrease
variable input cost to 9.3 percent in 18.0
from 2006/07 to 2008/09. For the 16.0
2008/09: Western Free State 14.0
the relative contri-
12.0
• Swartland: 12.2 to bution to total variable
10.0
9.3%. input cost is expected

%
8.0
• Western Free to decrease to 10.4
6.0
percent. In the
State: 16.3 to 4.0
Eastern Free State
10.4%. 2.0
the relative contri-
• Eastern Free bution of fuel to total 0.0
Fuel
State: 16.6 to variable input cost is
10.8%. expected to decrease 2006/07 Swartland 2007/08 Swartland 2008/09 Swartland
2006/07 Western Free State 2007/08 Western Free State 2008/09 Western Free State
to 10.8 percent in
2006/07 Eastern Free State 2007/08 Eastern Free State 2008/09 Eastern Free State
2008/09.
Figure 6b: Comparison of the contribution of fuel
cost to total variable input cost in
different wheat production regions
2006/07 to 2008/09
Source: GrainSA, 2008.

Change in the relative By comparing the weed control cost per production region for the 2007/08 and
contribution of weed 2008/09 seasons with the 2006/07 production season it can be seen from Figure
control costs to total 6c that the largest change in the relative contribution of weed control costs to total
variable input cost variable input cost was in the Eastern Free State region. In the Swartland the
from 2006/07 to relative contribution of weed control cost to total variable input cost is expected to
2008/09: decrease to 7.4
16.0
percent in 2008/09.
For the Western Free 14.0
• Swartland: 8.3 to
State the relative 12.0
7.4%.
contribution to total 10.0
• Western Free variable input cost is 8.0
%

State: 3.5 to expected to increase

6.0
13.5%. to 13.5 percent. In the
4.0
• Eastern Free Eastern Free State the
State: 3.5 to relative contribution of 2.0

13.3%. weed control cost to 0.0

total variable input Weed control

cost is expected to 2006/07 Swartland 2007/08 Swartland 2008/09 Swartland

increase to 13.3 2006/07 Western Free State 2007/08 Western Free State 2008/09 Western Free State
percent in 2008/09. 2006/07 Eastern Free State 2007/08 Eastern Free State 2008/09 Eastern Free State

Figure 6c: Comparison of the contribution of weed

control cost to total variable input cost in
different wheat production regions
2006/07 to 2008/09
Source: GrainSA, 2008.

7
 By comparing the repairs and parts cost per production region for the 2007/08 and
2008/09 seasons with the 2006/07 production season it can be seen from Figure
Change in the relative 6d that repairs and parts makes the largest contribution to total variable input cost
contribution of in the Western Free State region. In the Swartland the relative contribution of
repairs and parts repairs and parts cost to total variable input cost is expected to decrease to 6.2
costs to total percent in 2008/09.
16.0
variable input cost For the Western Free
from 2006/07 to State the relative 14.0

contribution to total 12.0

2008/09:
variable input cost is 10.0
expected to decrease 8.0

%
• Swartland: 10.1 to to 6.7 percent. In the
6.0
6.2%. Eastern Free State the
• Western Free relative contribution of 4.0

State: 14.9 to repairs and parts to 2.0

6.7%. total variable input cost 0.0

Repairs and parts
• Eastern Free is expected to
State: 13.1 to 7%. decrease to 7 percent 2006/07 Swartland 2007/08 Swartland 2008/09 Swartland

in 2008/09. 2006/07 Western Free State 2007/08 Western Free State 2008/09 Western Free State
2006/07 Eastern Free State 2007/08 Eastern Free State 2008/09 Eastern Free State

Figure 6d: Comparison of the contribution of

repairs and parts cost to total variable
input cost in different wheat production
regions 2006/07 to 2008/09
Source: GrainSA, 2008.

• Mechanisation

Producers are continuously seeking ways to reduce production cost of small

grain. In some production areas like the Rooi Karoo and middle Rûens,
producers tend to buy second hand machinery and keep them longer than the
recommended replacement period of 12 years. To determine the impact on
profitability, a typical small grain farm model was used to calculate the internal
rate of return of a multi-period investment6. The impact of a 12 year replacement
period for their combine harvesters and big tractors used for pulling the big
planting machines was compared with the impact of a replacement period of 20
years. The impact on the Internal Rate of Returns (IRR’s) is shown in Table D1
(see Appendix D).

The capital cost of the 20 year replacement period option is significantly lower,
and the IRR higher. However, the risk of a machine breakdown during the critical
periods of harvesting increases – an expected loss in income not captured by the
model and in most cases not acceptable for producers in higher yield areas. The
option of buying cheaper models of well-known European combine harvester
brands manufactured elsewhere is also not preferred by Western Cape wheat
producers as they expect the saving on a cheaper model to be exceeded by a
loss in income if the lighter axle model breaks during harvesting – a risk that they
cannot afford to take.

6
Developed by TE Kleynhans and W Hoffmann at the University of Stellenbosch.
8
 Changes in fertiliser prices

This section report price changes for only selected fertilizers The decision, in
consultation with GSA and producer representatives, to include the identified
fertilisers was based on the fact that it was relatively easy to source price
information, as well as their wide use. To ensure easy interpretation of the data
presented, price movements on only the local market of the identified fertilisers
are presented in Figures 7 and 8. The PPI-Wheat and PPI-Maize are also
included.

The price indices for Figure 7 shows that the trends for the items represented are generally upward.
MAP and LAN (28) Price increases for the items depicted between 1997 and 2007 were as follows:
increased more than 280
the price index for • MAP: 167.6% increase 260
240
maize from 1997 to
• LAN (28): 180.5% 220
increase 200

Index 2000=100
2007, but less than 180
• Urea Prill: 161.4 % 160
that of wheat. 140
increase 120
• Potassium chloride 100
80
granular: 157.8 % 60
increase 40
20
• PPI-Wheat: 186% 0
increase 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Local MAP Local LAN (28)
• PPI-Maize: 161.1% Local Urea Pril (46) Local Potassium Chloride
increase PPI-Maize PPI-Wheat

Figure 7: Price indices for different fertiliser

products compared to the PPI-Wheat
& PPI-Maize
Source: DoA, 2008 and own calculations from list prices.
The price indices for
3.1.0(28), 3.2.0(30), Figure 8 shows that the trends for the items represented are also generally
3.1.0(28) and local upward. Price increases for the items depicted between 1997 and 2007 were as
supers(10.5) follows:
300
increased less that 280
the PPI for outputs.
• 3.2.1(25): 148.7% 260
240
increase 220
However, output
• 2.1.0(30): 145.7% 200
2000=100

prices were much 180

increase 160
more variable 140
• 3.1.0(28): 155.7% 120
resulting in large increase 100
80
variations in income. • Local Supers (10.5): 60
40
157.9% increase 20
• PPI-Wheat: 186% 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
increase
South Africa’s • PPI-Maize: 161.1% Local 3.1.0 (28) Local 2.1.0 (30) Local 3.2.1 (25)
Local Supers (10.5) PPI-Maize PPI-Wheat
demand for fertiliser increase
is in the region of 2 Figure 8: Price indices for different fertiliser
million tons. To supply products compared to the PPI-Wheat
in this demand almost
& PPI-Maize
Source: DoA, 2008 and own calculations from list prices.
70% of the
fertilisers are The local demand for fertiliser is in the region of 2 million tons. To meet this
imported. demand almost 70% of the fertilisers have to be imported. Annual imports of
Urea amounts to 450 000 tons, LAN between 20 000 and 60 000 tons, Ammonia
9
 Sulphate between 100 000 and 150 000 tons, Potassium around 150 000 tons
and MAP and DAP between 30 000 and 50 000 tons. When considering the
basic composition of fertiliser in terms of N:P:K (Nitrogen: Phosphorous:
Potassium), it is important to note that South Africa produces no Urea and as a
result in the order of 50 percent of nitrogen is imported in the form of Urea, LAN
and Ammonia Sulphate. For Phosphorous, the amount of imports varies
significantly between years and is in the order of 50 000 tons per year, as South
Africa is mostly self sufficient in Phosphorous. South Africa does not have any
natural sources of Potassium which are mined and all our requirements are
Most fertiliser prices imported.7
remained firm after
Figures 9 to 11 compare domestic and international price trends (expressed as
2002 possibly due to
indices: 2000=100) for fertilisers over the period 1997 to 2008 (June). All the local
the fact that local
prices are list prices, excluding VAT and transport to the farm. All the local
manufacturers buy prices are list prices, excluding VAT and transport to the farm. It should be noted
against fixed prices that the international prices were expressed in R/ton and $/ton before converting
and exchange rate them into an index. Note should also be taken that the international prices
options months ahead depicted are not at South African harbours, and hence exclude cost, insurance
and thus carrying and freight to land the product in South Africa. Furthermore, international fob
stocks for future prices used differ from the usual port of origin for imports, but trends and general
delivery leading to price levels are similar.
slower price
The analysis shows that most local fertiliser prices remained firm after 2002,
adjustments.
possibly due to the fact that local manufacturers buy against fixed prices and
exchange rate options months ahead and thus carry stocks for future delivery
leading to slower price adjustments. Firm prices continued during the first six
months of 2008, mainly due to high demand from China and USA for production
of grains for the bio-fuel industry, as well as food security.

From 2007 to June In Figure 9 the price movement of the local MAP price is compared with the price
2008, local MAP and movement of the international DAP price8. Price increases for the items depicted
international DAP between 1997 and 2008 (June) were as follows:
increased with 103.3
750
and 134.7 percent • Local MAP 444.1% increase 700
respectively. • Int. DAP 688% increase 650
600
550
From 2007 to 2008(June) the 500
Index 2000=100

The prices on SAFEX

following changes in prices 450
of maize and wheat occurred:
400
350
increased by 15.3 and • Local MAP: 103.3% 300
58.2 percent, 250
increase 200
respectively between • Int. DAP: 134.7% increase 150
100
2007 and • White maize (SAFEX): 50
2008(June). 15.3% increase 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
• Wheat (SAFEX): 58.2%
increase Local MAP Int. DAP R/$ Exchange rate

Figure 9: Local MAP compared with

international DAP
Source: Grain SA, 2008 and own calculations from
list prices.

7
Based on information obtain from interviews with industry role-players.
8
International DAP price is fob, US Gulf in bulk. This comparison is made because both are a source of phosphate
although different compositions.
10
 Figure 10 shows the price movements of local Urea in comparison with the price
movements of international Urea9. Price increases for the items depicted
From 2007 to June
between 1997 and 2008 (June) were as follows:
2008, local Urea and
international Urea • Local Urea: 280%
increased with 45.3 increase 475
450
and 28.7 percent, • International Urea: 425
400
respectively. 464.8% increase 375
350
325
From 2007 to 2008(June)

Index 2000=100
300
275
The prices on SAFEX the following changes in 250

of maize and wheat prices occurred: 225

200

increased by 15.3 and

• Local Urea: 45.3% 175
150
increase 125
58.2 percent, 100
• International Urea: 75
respectively between
28.7% increase 50
25
2007 and • White maize: 15.3% 0
2008(June). increase 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

• Wheat: 58.2% increase Local Urea Pril (46) Int. Urea R/$ Exchange rate

Figure 10: Local Urea compared with

international Urea
Source: Grain SA, 2008 and own calculations from list prices.
From 2007 to June
Figure 11 shows the price movements of local Potassium Chloride in comparison
2008, local Potassium
with price movements of international Muriate of Potash (MOP)10. Price increases
chloride and for the items depicted between 1997 and 2008 (June) were as follows:
international MOP
increased with 113.5 • Potassium chloride: 500
and 100 percent, 450.4% increase 450
respectively. • International MOP: 400
726.2% increase 350
Index 2000=100

300
From 2007 to 2008(June) 250
The prices of maize the following changes in 200
prices occurred:
and wheat increased 150
• Potassium chloride:
by 15.3 and 58.2 100
113.5% increase
percent, respectively 50
• International MOP: 100%
between 2007 and increase 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2008(June). • White maize: 15.3%
increase Local Potassium Chloride R/$ Exchange rate
Int. Muriate of Potash (MOP)
• Wheat: 58.2% increase
Figure 11: Local Potassium chloride
compared with international
Muriate of Potash (MOP)
Source: Grain SA, 2008 and own calculations from list prices.

It is interesting to note that, on average, local prices of the depicted fertilisers

showed downward stickiness between 2002 and 2005, i.e. in many instances
9
International Urea price is fob, E. Europe in bulk. Although most Urea is imported from the Arab Gulf, prices show
the same movement on slightly different levels.
10
International Muriate of Potash (MOP) price is fob, CIS in bulk. Although most Muriate of Potash (MOP) is
imported from Vancouver and Israel, prices show the same movement on slightly different levels.
11
 fertiliser prices did not follow the same downward trend seen for international
prices expressed in R/ton. As mentioned this is, amongst other things, due to
Developments in the
forward cover on exchange rate options and order banking with fixed prices.
bio-fuel markets also Other factors that have an influence on the local market prices for fertilisers are
have a noticeable the variability of local demand and stocks, oil prices and shipping fees.
influence on Developments in the bio-fuel markets also have a noticeable influence on fertiliser
fertiliser prices in prices in that they influence the international demand for fertilisers, and hence the
that they influence availability of base material.
the international
demand for Changes in maize and wheat seed prices
fertilisers, and hence The cost of seed is determined by, amongst others, the cost of technology
the availability of development, parent seed development cost11, production cost of seed growers12,
base material. drying and other factory cost. Cognisance should also be taken of the fact that
overall returns (yield × price) from producing maize seed13 versus producing
maize or any other crop for commercial purposes impacts on the availability of
maize seed; the result is that when margins increase between seed and
commercial production seed companies have to compensate maize seed
producers14. All these factors give rise to upward pressure on seed prices.

When monitoring seed prices it is important to take into account that seed cultivar
development leads to continuous cultivar improvements. This causes difficulties
with the monitoring of a “basket” of seed prices over time since new seeds enter
the seed “basket” continuously. The differences between cultivars of the various
seed companies create further difficulties to make comparisons and to construct a
comparable seed “basket”. Hence, the information depicted in Figure 12 only
provides a general trend.

Figure 12 shows the PPI-Maize, PPI-Wheat and the Maize and Wheat seed price
The Maize seed price
indices. The Maize seed price index increased by 62.4 percent from 2000 to
index increased by
2007, while the PPI-Maize 275
62.4 percent from increased by 165.3 percent. 250
2000 to 2007, During this period the PPI- 225
compared to a 165.3 Maize showed much more 200
percent increase in movement with a 56 percent
2000=100

175

the PPI-Maize. increase during 2002, and a

150
decrease of 42 percent from
125
2002 to 2005. The PPI-Maize
increased from 2005 to 2007, 100

with 123.1 percent compared 75

2000 2001 2002 2003 2004 2005 2006 2007

to an increase of 8.8 percent P P I-W heat W heat s eed pric e index P P I-Maiz e Maiz e s eed pric e index

in the seed price index.

Figure 12: Average price movements for maize
seed, wheat seed and maize and
wheat
Source: PPI–Maize & PPI-Wheat, DoA 2008; Seed price
index, Grain SA, 2008.

11
The development of parent seed and the cost thereof occur almost two years prior to the selling of the seed.
During this period there is also the production cost of growers a year in advance. Another reason is the cost of
carrying stocks and seed, while it only has a shelf life of three years.
12
Note that production of seed is highly labour intensive, while any labour availability problems can lead to crop
losses. Also seed production is done under irrigation in areas that are dry and hot to limit the occurence of diseases
on breeding material.
13
It is reported that yields vary between 3 to 4 tons per hectare to produce seed under irrigation.
14
Based on information obtain from interviews with industry role-players.
12
 Figure 12 further shows that the Wheat seed price index increased by 83.2
The Wheat seed
percent from 2000 to 2007, while the PPI-Wheat increased by 126.3 percent.
price index increased
During this period the PPI-Wheat also showed much more movement with a 39.2
by 83.2 percent from percent increase during 2002, and a decrease of 28.8 percent from 2002 to 2005.
2000 to 2007, The PPI-Wheat increased from 2005 to 2007, by 90 percent compared to an
compared to a 126.3 increase of 19.6 percent in the seed price index.
percent increase in
the PPI-Wheat. Changes in tractor prices
Tractor sales represent 60 percent of all machinery sold in South Africa. Of this,
97 percent is imported due to economies of scale related issues. It is reported
that machinery (read tractor) purchasing patterns by maize producers changed
Tractor sales significantly over the last two to three years. Factors that impact on tractor prices
represent 60 percent include competition between tractor manufacturers (wider range of models),
of all machinery sold exchange rate movements and the rand per kilowatt (R/kW); the latter increased
in South Africa. Of significantly as a result of new technologies that were introduced.15
this 97 percent is
Figure 13 shows the price index for tractors16, PPI-Maize, PPI-Wheat and the R/$
imported due to
index. The price index for tractors increased by 140.5 percent from 1997 to 2007,
economies of scale
while PPI-Maize and PPI-Wheat increased by 161.1 and 186 percent,
related issues. respectively. Due to the large proportion of imports, the exchange rate is
expected to have a significant impact on tractor prices. The downward stickiness
depicted in the price index for tractors between 2002 and 3003 can probably be
attributed to tractors being ordered by local distributors during periods of higher
prices that were not sold during the same period.

300
275
250
225
200
2000 = 100

175
150
Tractor prices were 125
140.5% higher in 100
2007 than in 1997. 75
50
25
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

P P I-W heat P P I-Maiz e Trac tor pric e index R /$ index

Figure 13: Average price movements for tractors, wheat and maize
Source: PPI–Maize & PPI-Wheat, DoA 2008; Tractor price index, Grain SA, 2008.

Changes in fuel prices

Figure 14 shows the prices of petrol from December 2005 to June 2008. During
the depicted period, Petrol 95 ULP Gauteng and Petrol 95 ULP Coast prices
increased by 82.8 and 82.7 percent respectively. When looking at the current
prices in comparison with June 2007, the increases were 37.6 and 38.9 percent,
respectively.

15
Based on information obtain from interviews with Agfacts, Jim Rankin.
16
Recommended retail prices, excluding personal discounts.
13
 10.50
10.00
9.50
In June 2008 petrol 9.00
was on average 38.2 8.50

R/litre
8.00
percent higher than
7.50
in June 2007.
7.00
6.50
6.00
5.50
5.00

Jun-06

Jun-07

Jun-08
Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08
Feb-06

Feb-07

Feb-08
Oct-06

Oct-07
Petrol 95 ULP Gauteng Petrol 95 ULP Coast

Figure 14: Petrol prices

Source: South African Petroleum Industry Association (SAPIA), 2008.

Figure 15 shows the prices of diesel 0.05% S Gauteng and diesel 0.05% S Coast
from December 2005 to June 2008. During the depicted period the prices of diesel
0.05% S Gauteng and diesel 0.05% S Coast increased by 103.9 and 106.5
percent, respectively. Comparing year on year for June 2008 prices increased by
72.8 and 74.4 percent, respectively.

11.50
11.00
In June 2008 petrol 10.50
was on average 38.2 10.00
percent higher than 9.50
9.00
in June 2007.
8.50
R/litre

8.00
7.50
7.00
6.50
6.00
5.50
5.00
4.50
Jun-06

Jun-07

Jun-08
Dec-05

Aug-06

Dec-06

Aug-07

Dec-07
Apr-06

Apr-07

Apr-08
Feb-06

Feb-07

Feb-08
Oct-06

Oct-07

Diesel 0.05% S Gauteng Diesel 0.05% S Coast

Figure 15: Diesel prices

Source: South African Petroleum Industry Association (SAPIA), 2008.

Summer grain To explore the impact of the increase in diesel prices, consider the following
harvesting: example with prices in Gauteng. A summer grain producer that needs to harvest
Increase of R91 per uses approximately 20 litres per hectare to harvest and transport the grains to the
hectare due to diesel silo. The price increase during June 2008 will therefore result in an increase in cost
of R91 per hectare for diesel in comparison to June 2007. Based on the 2006/07
price increase.
production year’s final total hectares planted, the additional diesel cost to harvest
summer grain (mainly maize) amounts to approximately R232.2 million.
14
 The wheat producer that needs to plant this season’s crops will use approximately
55 litres per hectare to produce wheat. The price increase during June 2008 will
Winter grain planting: therefore result in an increase of R250 per hectare for diesel in comparison to
Increase of R250 per June 2007. Based on the 2007/08 production year’s estimated planting, the
hectare due to diesel additional diesel cost to plant winter cereals (mainly wheat) amounts to
price increase. approximately R158.2 million.

The fuel price in South Africa is linked to the international price of crude oil and is
quoted in US dollars (US$) per barrel. Crude oil prices combined with the
Rand/Dollar exchange rate therefore have a major impact on fuel prices
(Department of Mineral and Energy, 2008). The fuel pump price is made up of
certain international and domestic price elements. The international element, or
Basic Fuel price (BFP), is based on the import parity principal (the cost for a South
African importer of fuel to buy the fuel from an international refinery, transport the
product from that refinery, insure the product against losses at sea, and land the
product on South African shores). To arrive at the final pump price in the different
pricing zones (magisterial district zones) certain domestic transport costs,
government imposts (or taxes and levies) and retail and wholesale margins need
to be added to the international price. The petrol retail price is regulated by
government. The Central Energy Fund (CEF) is responsible for the price
calculation (on behalf of the Department of Minerals and Energy). Changes in
margins and the transport element are based on actual costs incurred by the
South African industry and calculated according to a formula (approved by the
Minister of Minerals and Energy) (iFleet, 2007).
Farmers qualify for a
fuel rebate of 90.9 c For the period 2 April to 6 May 2008 the wholesale price for Diesel 0.005%S was
per litre (April 2008) 943.7 cent per litre. The Basic Fuel Price amounted to 717.03 c/l. Figure 16
on 80% of shows the breakdown of the other 226.67 cent per litre. The wholesale price of
consumption. diesel is regulated but not the retail price. Farmers qualify for a fuel rebate of 90.9
c per litre (April
2008) on 80% of
consumption, Fuel levy, 111.0,
calculated as 47%
RAF levy, 46.5, 19%

follows: The RAF

(Road Accident Wholesale margin,

Fund) levy (46.5 c 39.3, 16%

Petroleum Products
per litre) plus 40% levy, 0.2, 0% Zone dif f erential in
Gauteng, 13.9, 6%
of the fuel tax (111 IP Tracer levy, 0.0,
Service cost
recoveries, 11.9, 5%
c per litre). 0%
Customs & excise
Slate levy, 4.9, 2%

duty, 4.0, 2%
Storage, handling &
delivery costs, 7.0,
3%

Figure 16: Breakdown of (Gauteng) diesel wholesale

price: 938.30 c/l on 2 April 2008 (0.05%
sulphur content) – price (c/l); percentage
(%) of total price
Source: Department of Minerals and Energy, 2008.

Disclaimer:
Although everything has been done to ensure accuracy of the information in this publication, the NAMC does not
take responsibility for the accuracy or the opinions contained in this publication. Results of action based on this
information, will not be the responsibility of the NAMC.

15
 Appendix A: Definitions of different price indices

FRPI-Total includes price indices for machinery and implements, materials for fixed improvements and
intermediate goods. The latter includes fertiliser, fuel, farm feed, animal health and crop protection,
packing material, and maintenance and repairs.

PPI-Total includes indices of producer prices of field crops, horticulture and animal production.

PPI-Field crops include indices of producer prices for summer grains, winter grains, oilseeds, sugarcane,
hay, dry beans, cotton and tobacco.

PPI-Maize is the price index for producer prices for maize.

PPI-Wheat is the price index for producer prices for wheat.

Appendix B: Composition typical of production costs

Table B.1 shows the different input cost components included in a typical input cost budget. The focus
of this report is on the variable cost component only.

Table B.1: Input cost components.

Variable cost Capital cost
Seed Machinery & Equipment:
Fertiliser & Lime Depreciation
Herbicides Interest
Insecticides and fungicides Fixed improvements:
Fuel Interest
Maintenance and repairs Depreciation
Crop insurance Repairs & maintenance
Casual labour
Marketing cost
Drying & cleaning cost
License & Insurance
Permanent labour
Interest on production credit
Contract work
Other cost

16
Table B.2 shows the different input cost components included in a typical input cost budget for wheat.
The focus of this report is on the variable cost component only.

Table B.2: Input cost components.

Variable cost Capital cost
Seed Machinery & Equipment:
Fertiliser & Lime Depreciation
Herbicides Interest
Insecticides en fungicides Fixed improvements:
Fuel Interest
Maintenance and repairs Depreciation
Crop insurance Repairs & maintenance
Casual labour
Marketing cost
Drying & cleaning cost
License & Insurance
Permanent labour
Interest on production credit
Contract work
Other cost

Appendix C: “Other cost” & “All other” cost items

The “other cost” category includes banking fees, printing and stationary, donations, water and electricity,
telephone and auditing costs.

The “All other” cost category includes cost of crop insurance, marketing, drying and cleaning, license
and insurance, and contract work.

17
 Appendix D: Impact of expanding the replacement period on return on investment

Table D1: Impact of mechanization structure expanding normal replacement trend of 12 years to 20 years in selected
wheat producing areas
REGION YIELD VARIATION DUE TO IRR
CLIMATE
SWARTLAND POOR AVERAGE GOOD
MIDDLE SWARTLAND (12 years) # FREQUENCY* 1 7 2
**FARM SIZE: 800HA WHEAT YIELD (T/HA) 1.8 2.4 3.0
***GPV (R/HA) 2032.85 2609.28 3162.92
GROSS MARGIN (R/HA) 695.17 1394.94 1557.33
GROSS MARGIN % 34.20% 53.46% 49.24%
NET FARM INCOME (R/HA) -216.21 483.56 645.95 2.10%

SWARTLAND POOR AVERAGE GOOD

MIDDLE SWARTLAND (20 years) ## FREQUENCY* 1 7 2
**FARM SIZE: 800HA WHEAT YIELD (T/HA) 1.8 2.4 3.0
***GPV (R/HA) 2032.85 2609.28 3162.92
GROSS MARGIN (R/HA) 695.17 1394.94 1557.33
GROSS MARGIN % 34.20% 53.46% 49.24%
NET FARM INCOME (R/HA) -162.56 537.20 699.60 3.49%

SWARTLAND POOR AVERAGE GOOD

ROOI KAROO(12 years) FREQUENCY* 3 6 1
**FARM SIZE: 980HA WHEAT YIELD (T/HA) 0.7 1.3 2.0
***GPV (R/HA) 1236.82 1642.52 211.84
GROSS MARGIN (R/HA) 523.22 836.74 1345.73
GROSS MARGIN % 42.30% 50.94% 63.60%
NET FARM INCOME (R/HA) 44.71 358.24 867.22 2.23%

SWARTLAND POOR AVERAGE GOOD

ROOI KAROO (20 years) FREQUENCY* 3 6 1
**FARM SIZE: 980HA WHEAT YIELD (T/HA) 0.7 1.3 2.0
***GPV (R/HA) 1236.82 1642.52 211.84
GROSS MARGIN (R/HA) 523.22 836.74 1345.73
GROSS MARGIN % 42.30% 50.94% 63.60%
NET FARM INCOME (R/HA) 70.32 383.84 892.83 3.36%

SOUTHERN CAPE POOR AVERAGE GOOD

MIDDLE RUENS (12 years) FREQUENCY* 2 5 3
**FARM SIZE: 1600HA WHEAT YIELD (T/HA) 1.8 2.2 2.5
***GPV (R/HA) 2030.41 2317.80 2536.67
GROSS MARGIN (R/HA) 460.69 765.12 935.93
GROSS MARGIN % 22.96% 33.01% 36.90%
NET FARM INCOME (R/HA) -127.53 176.89 347.71 1.05%

SOUTHERN CAPE POOR AVERAGE GOOD

MIDDLE RUENS (20 years) FREQUENCY* 2 5 3
**FARM SIZE: 1600HA WHEAT YIELD (T/HA) 1.8 2.2 2.5
***GPV (R/HA) 2030.41 2317.80 2536.67
GROSS MARGIN (R/HA) 460.69 765.12 935.93
GROSS MARGIN % 22.96% 33.01% 36.90%
NET FARM INCOME (R/HA) -56.71 247.72 418.53 2.40%
# Indicate the farm model with normal machinery replacement period
## Results for situation where machinery is kept longer than the normal replacement period

18