In South Africa, the impact of all factors described above, particularly climate change, is most evident in our all-important maize industry. Less-than-average rainfall has been forecast in most maize production areas for the latter part of 2014 but this is expected to normalise this year. While not necessarily universal across all farming activities, the impact this scenario has on grain-producing farmers is a good indication of the many and varied risks that South Africa's agriculture industry will be up against going forward.
From a climate risk perspective, while it is obviously impossible to predict the weather, commercial farmers have to start planning for the increased possibility of less-than-ideal climatic conditions - and the only way to do that is by embracing sustainable farming practices.
In the past, when the country enjoyed more predictable weather patterns, farmers might have been able to get away with investing large sums of capital into planting and then simply hoping that the 'weather gods' would be kind to them. These days, however, such an 'invest and hope' approach is almost certainly a fast track to bankruptcy. Instead, a detailed scientific and calculated approach is essential, not only to maximise yields, but also to limit losses. This will allow farmers to maintain good working relationships with the country's financial institutions, which continue to be vital partners in the success of any commercial farming enterprise.
While entire books could be written about the many sustainable practices modern South African farmers can adopt to mitigate climate and other risks, there are a few non-negotiable components of lasting farming success.
For starters, it is time that every commercial farmer in South Africa accepts the responsibility that he/she has to embrace technology fully, adopt scientific farming practices and understand optimal price hedging structures and varying opportunities in a dynamic environment.
A more scientific approach is especially important for farmers who recognise the imperative to mitigate against the potential for sustained lower rainfall in the future. In this regard investment into technology that helps analyse soil profiles, check pH levels, map moisture levels and limit wastage as a result of planting in suboptimal soils is vital.
Linear steering technology - where a tractor effectively steers itself using satellite tracking and soil profiling to minimise tilling and maximise planting efficiencies - is a prime example of such investment for the highest possible long-term yield. Of course, this is expensive technology, but forward-thinking banks are becoming increasingly open to financing it, provided farmers are able to demonstrate the levels of sustainable planning that can maximise its effectiveness and returns over time.
Apart from the physical act of farming, sustainable farmers also understand the responsibility they have to optimise their financial matters - most significantly the price they can get for their crops. This is best achieved through the third-third-third pricing approach, which is essentially a good way of ensuring that, when it comes to price optimisation, you are right at least two thirds of the time. The approach is essentially this: For a third of your crop do nothing and expose yourself to the vagaries of the market. For the second third hedge your price on the South African Futures Exchange (SAFEX). And, for the final third, hedge by way of buying put options; giving you the right but not the obligation to deliver in a bear market; thus limiting your downside with no cap on the upside.
This pricing approach is not dissimilar to the widely accepted equity investment approach of diversifying a portfolio. Not only does it afford the farmer the highest, risk-controlled potential for maximum returns, but it also offers real protection against the otherwise financially devastating impact of volatile and unpredictable markets.
The final non-negotiable component of truly sustainable farming is undoubtedly insurance. While it would be unrealistic to recommend that every farmer should hold expensive multi-peril insurance, using the cost of insurance cover for hail as an excuse for not taking out any insurance is a very dangerous approach, particularly given the unpredictable and fast-changing weather patterns that now exist across the country as a result of climate change.
Given the myriad challenges today's farmers face, arguably the most valuable piece of advice about sustainable farming any farmer can take to heart is not to attempt to be the master of all things. It's easy to fall into the trap of trying to be a meteorologist, an agronomist, an HR consultant, a mechanical engineer, a treasurer and everything else your farming operation needs. When you try to juggle so many balls at once, you are bound to drop at least one of them. Rather be prepared to outsource some of these functions to the relevant experts so that you can focus on the core objective of your farming operation, which is, when you come right down to it, to consistently grow the best quality crops with the highest possible yields in the most sustainable manner.
