Production Cost Index urges farmers to produce efficiently

By: Deon Schlechter

Windhoek: The production cost index of the Namibian Agricultural Union (NAU) highlights the fact that Namibian farmers need to constantly improve on their productivity and efficiency to counteract the effect of the price-cost-squeeze phenomenon.

This was the conclusion reached by Jaco Hanekom, assistant manager of commodities at the NAU, when he addressed the annual Livestock Producers Organisation’s congress in Windhoek on the production cost index for the third quarter of the year.

He notes that the production cost index for the third quarter of 2015 highlights the ongoing trend of declining profitability in the livestock industry, particularly with respect to cattle.

The sheep industry showed a much more robust trend on the sheep income side, with sheep prices almost keeping up with rising production expenses in the last 10 years. The cattle industry reflected an average annual price-cost squeeze of around 7 percent over the past 10 years, with sheep prices ending on a much more acceptable 2 percent over the same period.

The average annual price-cost squeeze percentage reflects the average annual percentage at which production expenses outpaces producer prices for cattle and sheep respectively.

“The farm inflation rate, which represents the prices of a basket of production expenses, ended on 4.9 percent for the third quarter of 2015, up from 2.7 percent in the second quarter of 2015. This is however still much lower than a farm inflation rate of as high as 12.2 percent for the first quarter of 2014,” Hanekom said.

“The large decline in the farm inflation rate was mainly due to a significant drop in oil prices, but also to a lesser extent the drop in iron ore (steel) prices since the middle of 2014. Due to the fact that most of the inputs used by farmers in Namibia are imported from South Africa, fuel makes up a significant portion of the price of these products. A decline in fuel prices, therefore, had a marked impact on the inflation rate,” he concludes.