Here’s What You Should Know to Start a Business in the Agriculture Sector
Livestock is the top commodity industry in South Africa’s agriculture sector, it accounts for 49.8% of the country’s total agriculture gross producer value (GPV), says Paul Makube, Senior Agricultural economist at FNB Agri-Business.
Makube adds that the other main commodity industries are horticulture and field crops with 27.1% and 23.1%, respectively in 2017.
If you are looking for a business opportunity in the agriculture sector, here’s what you should know:
The industry’s value
In 2017, the gross value of production (in the agriculture sector) was R266.63 billion with a total debt of R158.34 billion, according to Makube.
Makube says that in the livestock market, the poultry industry made the largest contribution to the agriculture GPV with 16.2%, followed by the beef industry with 13.2% during 2017.
He adds that primary agriculture and agribusiness sectors are closer to 15% of GDP, and that agro-processing, for example, has become bigger and currently weighting of 25.8% of total manufacturing and about 3.5% of GDP.
Makube advises that you assess gaps in provision of services particularly up the value chain in agro-processing.
Besides primary (farming) production and agro-processing, there are a broad range of other services (business opportunities) you can provide, which includes:
- Consulting (for example, a labour relations expert can draft a labour relations policy for a farming business)
- Provision of equipment (repairs, parts, rental)
- Marketing services (packaging, distribution)
- Regulatory services (auditing, quality assurance etc)
- Farming services (fencing, IT services etc).
Makube says the setup costs are different according to sector and size and scale of operation. “Diary and poultry for example are expensive. To set-up it’s R4-million per unit. This includes housing and equipment. With piggerys, for example, there are machines involved.
“Primary processing is more prohibited, because of the technology involved, so it’s more expensive,” says Makube. He adds that it’s expensive because you have to rely on getting the parts from the primary supplier to get the parts to the machinery.
Makube does not give the costs to farm nuts and fruit, but he says the costs are huge. “(You need) several hectares of trees. The cost is huge in terms of cost of land where you must plant. Plus, the income streams come in three or four years later.
“Strawberries, for example, have a high value cost, because you have to maintain it, have cooling technologies, which can be challenging.”
According to Makube, livestock like cattle is not expensive. “A cow and calf on average could cost R10,000 per animal. It depends on the breed and also the supply and demand.”
He adds that farms are limited, saying starting a business in agriculture depends on collateral and it depends on the size of the operation. “If you do agro-processing you cannot go small.”
According to Makube, the industry challenges include:
- Major policy and regulatory uncertainty such as Expropriation Without Compensation, water rights, tariffs, access to markets and finance.
- Volatility in production due to climate.
- Access to collateral (land as security).
- High barriers of entry due to lack of own contribution/ equity.
- High input costs relative to value of land (cost of production and implements can exceed value of land).
Support and training
Makube says that both commercial banks (the big four) and development finance institutions such as the LandBank and the Industrial Development Corporation provide a variety of finance products for the sector. There are a number of agriculture cooperatives that provide direct financing to farmers, for example AFGRI, Suidwes Landbou, BKB, and NWK Limited.
Available training could be done formally and informally by universities and agriculture colleges. CoOps also provide some support in the areas they serve.