Determining the feasibility of a steersand- oxen-beef production system in South Africa

Abstract

Barely a day goes by without reference being made to the disadvantageous circumstances that the South African farmer has to overcome. Marginal soils, climate challenges, uncertain political conditions, cost pressure from low commodity prices and high input costs are just a few of the daily obstacles that the South African beef producer has to overcome every day to survive. Luckily for the South African consumer, the South African farmer is resilient and innovative. Tough economic conditions usually kindle an awareness of cash flow and becoming more efficient in handling household or farm expenses. Most beef producers in South Africa are price takers. They farm in marginal conditions and have no way of mitigating the effect of the highly volatile weaner prices and the constant rise of input costs. Most input costs are derived from international dollar-based commodity prices but meat prices are determined locally by supply and demand. The prices are also artificially manipulated to a large extent by members higher up in the value chain and other market makers. This causes a lot of medium as well as small and large-sized agricultural enterprises to go bankrupt because environmental conditions prevent capacity increases. The drought of the past few years forced more farmers to reduce their cow herds rather than increase them, and poor cash flow prevents expansion or supplementation to improve efficiency. Thus, a viable solution must be formulated to maintain food and job security in South Africa. The study made use of cash-flow models and financial analysis indicators, including net present value, internal rate of return, return on investment, annualised return on investment and simple payback period. These were used to compare the feasibility, profitability and cash flow of the different production systems with one another in different scenarios, which simulated the main production areas of South Africa. The study concluded that commercial farmers can be more profitable by using ox production systems in more marginal areas than, cow-calf production systems. Farmers can also use the ox production system to mitigate the effects of droughts and other black swan events within the beef production sector or industry.