How grain farmers can ensure cash flow and financing amid seasonal uncertainty

Success in agriculture is no longer guaranteed solely by yield. In a market environment characterized by severe cost compression, Desri Lesele from Nedbank shares important insights regarding margin management, avoiding credit traps, and utilizing digital procurement tools.

Behind every successful summer harvest lies a careful balance between resource expenditures, market risk, and strategic planning, which determine the farm's survival. Discussing the practical side of margin management with Food For Mzansi, Desri Lesele, Senior Value Proposition Manager for Agriculture Clients at Nedbank, explains why financial discipline has evolved from an administrative preference to a strict commercial requirement for modern producers.

Lesele notes that the agricultural sector operates under high market pressure. Two consecutive strong production seasons have led to an abundance of grain supplies and lower commodity prices, while resource costs remain significantly above historical levels. He emphasizes: 'What we are seeing is a cost-compression season where margin management is as crucial as production management.'

In traditional agriculture, total tonnage per hectare is often considered the main indicator of success. However, current market conditions prove that two farmers can achieve almost identical harvests but end up with vastly different financial outcomes depending on decisions made before planting. The strategy heavily relies on proactive margin management to protect farm profits without compromising actual field productivity.

Lesele stresses that assessing a financing application goes far beyond checking standard financial statements and historical production charts. Essentially, this approach aims to stress-test the budget, clearly analyze the break-even point, and conduct a comprehensive risk assessment. The strongest funding applications are rarely the most optimistic; rather, they are those that demonstrate a clear, calculated understanding of both operational capabilities and market risks.

A critical error in this process is confusing accounting profitability with actual cash flow. While profitability shows whether a business creates value on paper, cash flow determines if the farm can survive long enough to realize that value. An agricultural business might look very successful on the balance sheets, but if its funds are tied up when resources need to be purchased, the operation faces serious strain. A lack of working capital at critical stages of the production cycle creates immense pressure.

Therefore, Lesele urges farmers to ask not only, 'Will this crop be profitable?', but also: 'When will my largest cash outflow occur?', 'How much working capital will I need?', 'What happens if the harvest is delayed?', 'What happens if prices are lower than expected?', and 'What happens if the yield is below plan?' It is these questions that test the resilience of the business and ensure the structural soundness of the financing model.

Effectively managing these cash flows requires making sound procurement decisions even before the season begins. Using digital markets provides the necessary price transparency when sourcing resources before the season starts. These platforms allow farmers to compare prices, evaluate alternative suppliers, and strictly control production costs. This disciplined approach to procurement led to Nedbank's partnership with the online agricultural marketplace PrysWys. This collaboration gives grain producers deeper insight into resource costs, enabling them to purchase more efficiently.

'The goal is to give farmers greater visibility into resource pricing and help them make more informed purchasing decisions. But the broader lesson extends beyond any single platform. The real opportunity lies in using technology to improve decision-making quality.'

Lesele's final message to grain producers preparing for the upcoming summer season is to focus entirely on building a sustainable business, rather than just chasing one harvest. He offers the advice of an experienced producer who perfectly embodies this mindset: 'I stopped trying to predict every season and started focusing on building a business that could survive most seasons.'

Ultimately, agriculture rewards meticulous preparation, not certainty. Farmers who successfully navigate this cost compression are those who proactively manage risks and build a business capable of withstanding future seasons.

foodformzansi.co.zaJuly 24, 10:00

Smart logistics and pricing are necessary for the competitiveness of South Africa's potato industry

The South African potato industry must move beyond mere production and focus on supply chain efficiency, data-driven decision-making, and meeting consumer needs to maintain its competitiveness. This was stated by delegates at the recent Potato SA Congress and the Seed Potato Producers Forum in Johannesburg.

Improving Product Flow

Speakers from various parts of the production chain noted that while South African farmers produce quality products, greater value can be achieved by improving the process of moving potatoes from farms to buyers and responding more quickly to changing consumer habits.

Steven Fink, a potato producer from Limpopo, emphasized that farmers have achieved high efficiency in harvesting and quick delivery, but bottlenecks further down the value chain limit growth. He noted that optimizing this part of the chain can stimulate higher product turnover, increase flow, and ultimately demand.

Sales and Demand Strategies

Peter van Zyl, Head of Procurement at Freshmark, reported that retailers possess an unparalleled understanding of consumer behavior, and producers should use this information for more careful planning of harvests and deliveries. Van Zyl explained that most potato purchases occur before the weekend, so producers should plan deliveries to distribution centers on Thursday and Friday when demand is highest.

He also advised reducing harvest and marketing volumes mid-month when demand typically drops, and increasing them towards the end of the month to match peak needs. According to Van Zyl, efficient logistics allows potatoes to reach store shelves in less than 48 hours after harvest.

Technology and Accessibility

Louis van Zeuner, former head of Absa, urged producers to embrace technological changes rather than fear them. He stated that the threat lies not in the change itself, but in the unwillingness to move with it. He added that artificial intelligence (AI) provides the ability to process the growing volume of available data to support better business decisions.

Meanwhile, Dr. Carmen Müller, a researcher at the University of Pretoria specializing in nutrition and consumer research, pointed out that potatoes play a critical role in South Africa's food security due to their year-round availability, nutritional value, and wide consumption. However, she warned that price volatility remains a serious obstacle for low-income households, as they will not buy the product if the price is higher than expected or unaffordable.

Sustainability and Product Quality

Steven Wolfardt, Head of Sustainability at PepsiCo, noted that consumers are increasingly interested in the food production process. He stressed that basic practices, such as fair labor practices, responsible chemical management, and water efficiency, must be implemented. He predicts that soil health will become the foundation of sustainable potato production.

Louis de Kok, founder of Nile.ag, believes that digital technologies and e-commerce can provide a more direct link between farmers and consumers, provided the solutions are adapted to South African conditions. De Kok emphasized that quality production remains paramount, not a strong social media presence. He also noted that many farmers focus on reducing resource costs, ignoring potential profits from effective marketing and choosing the right sales channels, believing that this is where the biggest opportunities for increasing profitability lie.