According to Nico Groenewald from Standard Bank, producers need to be well acquainted with the myriad challenges in the agricultural sector. These challenges are diverse and affect the environment, global economy and food security, among other things. Yet knowing exactly what is hindering advancements in the industry, will allow producers to identify the hidden opportunities each challenge presents.

Agriculture is multidimensional and comprises various value chains and sectors. More than one billion people worldwide work in agriculture, generating US$2,4 trillion for the global economy. Due to its immense size, the challenges the global agricultural industry faces may be colossal, but the opportunity for growth and expansion is even bigger.

According to Nico, the Organisation for Economic Co-operation and Development (OECD) has summarised some of these global challenges and compartmentalised them into three categories. “Agriculture needs to feed an ever-increasing population while creating a sustainable livelihood for producers, without harming the environment. These three goals represent some of the biggest challenges in the global agricultural industry and needs to be tackled concurrently to ensure sustainable progress,” he explains.

In solving these challenges, producers can grow their own farming empires and contribute towards the economy. For instance, more income can be generated by increasing farm productivity, which means more food will be available for consumers at lower prices and, in some cases, pressure on the environment will be reduced. Then again, solving these challenges may require trade-offs between sectors to ensure both profitability and sustainability.

Challenges on a global front

The United Nations’ Food and Agriculture Organization (FAO) estimates that there are at least 570 million farmers worldwide. Of these more than 500 million can be considered family farmers living in rural areas. “For many people living in poverty, agriculture is central to how they earn a living,” says Nico.

On the other hand, this global dependence on agriculture has a significant effect on the environment. “Almost 40% of the world’s surface is being utilised for agriculture, with much of the agricultural land replacing grasslands, forests and savannas.”

Consequently, the clearing of tropical forests for agricultural purposes is contributing between twelve to 16% of total carbon dioxide emissions to the atmosphere, modifying both global and regional climates. “Emission from agricultural production accounts for approximately 11% of global greenhouse gas emissions, with agriculture using 70% of all global freshwater supplies,” Nico adds.

Economic realities of farming enterprises

Nico says that two common challenges – detailed in a recent study conducted by Successful Farming – is evident when looking at producers in larger production areas such as the United States (US), China and Brazil. These challenges point to farm income and agricultural economics.

According to the study, challenges pertaining to the economics of a farm go deeper than just the income it generates. Higher debt levels and lower working capital on producers’ balance sheets reveal an unfavourable trend, highlighting their struggle to remain profitable.

“Obviously, other global challenges were also mentioned, such as climate change, global unrest, the trade war between the US and China, and African swine fever. However, farm economics stood out as a ubiquitous challenge in the global agricultural industry,” he adds.

Another interesting study done by Ramon Felipe Bicudo Da Silva on soya beans in Brazil, also points to challenges pertaining to agricultural economics. “Farmers are becoming more economically vulnerable in their attempt to stay on a metaphorical treadmill, aimed at continuously keeping up with various technologies, management techniques and mechanisms to promote commercialisation and increase production,” he explains.

“Seeing as equipment upgrades are fairly capital intensive, and technology is improving and evolving at a rapid pace, producers are pushed to increase their reliance on debt to avoid bankruptcy. Once producers adopt mechanisms within their on-farm system to participate in this capital-intensive activity, the benefits become less economically effective over time, which then drives producers to reinvest in new mechanisms,” adds Nico.

Some of these challenges can be met head on through educational and agricultural associations that enable producers to deal with business management challenges.

Agricultural challenges on the local front

In South Africa we have many of the same agricultural challenges coupled with some fairly unique circumstances, according to Nico. “The exclusive challenges are electricity constraints, rural safety and policy uncertainty with specific reference to land ownership. These issues also scare off potential outside investors.

“However, the opportunities these challenges present have already been recognised. Renewable energy is becoming more popular in South Africa as producers look for new ways to save money. Rural crime is fuelling the development and implementation of livestock identification and traceability systems, while policy uncertainty is paving a road  via initiatives such as blended finance solutions that will support communal farmers in finding their footing in commercial markets,” concludes Nico. – Claudi Nortjé, Plaas Media

For more information contact 011 721 9089, or send an email to SBSA.agricultural@standardbank.co.za. You can also visit the website at www.standardbank.co.za/agribusine@staff