By Roelof Bezuidenhout

Farmers are typically price takers, meaning they must accept prevailing market prices because they lack the power and market share to influence or set prices themselves.

So, can farmers really hope for a bigger slice of the retail pie?

Organised agriculture has long urged retailers to absorb a greater share of costs and pay farmers more for their produce. While such appeals may help raise awareness among consumers and government about the challenges facing agriculture – especially in these times of soaring input costs and high food prices – they’re unlikely to sway seasoned retailers. These are businesspeople with shareholders to answer to, and if importing cheaper goods protects their margins, they won’t hesitate to do so.

As one of the founders of OK Bazaars put it, “To make enough money to grow, you must sell your stock at three times the price you paid for it. If you can’t, you’re out.”

Pricing strategies

Not all marketing tactics work in practice – as the former Dairy Board discovered in the early 1970s. The board, one of many commodity boards of the time, controlled the price of milk products, and suddenly faced a domestic cheese surplus. To solve the problem, the board’s economists decided to raise the price of cheese, believing this would somehow encourage consumers to buy more. Unsurprisingly, sales fell even further. It was only when the price was drastically reduced a few months later that cheese started moving again.

The Dairy Board’s logic was not entirely flawed. A well-known car manufacturer once claimed that the best way to stimulate vehicle sales was to hint at coming price increases. That usually stirs people to buy before the new prices kick in. But food is bought every day, not every three years or more.

A market-driven world

In the world of trade, shrewd businessmen play hardball. Several years ago, when mohair prices were languishing at low levels, a wealthy mohair buyer drew the ire of farmers. They had complained bitterly that farming with Angora goats was no longer viable and accused the trade of exploiting them. The buyer responded calmly, saying that every business must look after itself, and that it was not his responsibility to make small-stock farming profitable or to keep farmers on their land. No one was looking after him, after all. And besides, there would always be someone producing mohair for him to buy.

Since then, the mohair price has tripled. Yet many farmers still argue that the average price should be closer to R500/kg, rather than the current R300/kg.

The same is true for wool. Today’s price of about R120/kg is a far cry from the R400/kg farmers earned during the wool boom of the early 1950s.

Wool buyers argue that they operate on international pricing and pay the same for South African wool as they do for Australian wool. (Australian farmers, of course, gave up long ago trying to compete with industry for labour – an ongoing factor that significantly increases their production costs.)

South African farmers often refer to what’s known as the “bakkie inflation” phenomenon to highlight their weak bargaining position. In the 1980s, for instance, a top-of-the-range new bakkie could be bought for the price of about 50 sheep. Today, buying a new bakkie might require the sale of up to 400 sheep.

Car dealers would understandably point out that today’s vehicles are far more powerful, safer and technologically advanced that those of the past. Buyers are now paying for features such as air-con, fuel efficiency, electronics and other conveniences.

A similar argument applies to raw agricultural products such as milk, wine, wool and meat. By the time these items reach the shop shelf, they’ve been transformed into entirely different products – chilled, attractively packaged, labelled or bottled, with quality control and wastage accounted for. Wool, for instance, is no longer a greasy fleece but a stylish suit, complete with lining and pockets.

Moreover, all these products are made available under one roof, where consumers can browse, compare and pay conveniently with credit cards. In many cases, it’s the retailers who create the markets for goods that might otherwise never reach consumers.

Growing the pie

The average farmer simply cannot compete with the examples mentioned above. Some successful producers, however, have managed to differentiate themselves by offering goods or animals that are either scarce or of such high quality that buyers actively seek them out. Others have grown large and influential enough to negotiate fairer deals with processors or retailers.

For most farmers, though, there is no luxury of setting prices based on perceived value – unlike, says, a stock remedy company that can price its product at R2 per dose per animal simply because it believes users will be prepared to pay that. Instead, farmers must find other ways to manage costs: through mechanisation, reducing their labour force, adding value to their products, shifting to export-focused goods that benefit from a weakening rand, or selling directly to manufacturers or consumers.

It may seem appealing to squeeze a few extra cents out of retailers, especially in tough times when even the superrich are tightening their belts, but the real solution lies elsewhere. What the country needs is more employment, particularly outside of agriculture, to boost overall consumer spending. We need to grow the pie, not just cut smaller and smaller slices from the one we have.

The most likely future scenario is one where large partnerships or agribusinesses dominate production. It’s not ideal, but this model may help moderate food price increases – and perhaps more importantly, put to rest the idea that government-imposed price controls can ensure national food security.

Also read:

South Africa’s meat prices remained stagnant in February 2025

Vegetable prices on the rise

Expert advice from Lourens Koch, marketer at Vleissentraal Ermelo