Offtake agreements: an open door or a trap?

Dineo Mokgoshi dreams big. She has plans to expand Segometsi Bakgoshi Agricultural Cooperative, a successful mixed-farming operation. She already manages 48 000 laying hens, flocks of more than 120 sheep and goats, 120 Pinzgauer cattle and a PinZ²yl stud herd, as well as a commercial cattle herd of 133 Brahman-type animals, and has offtake agreements in place.

Lindiwe Sithole, host of African Farming Season 2, wants to know from Sylvester Lubambo, Training and Development Manager at Lemang Agricultural and a panel expert on the show, whether offtake agreements are a viable door-opener for financing a farmer’s plan to expand. 

With continued volatile commodity prices putting pressure on expansion projects and their financing, offtake agreements could be utilised in helping farmers reach their goals. However, according to Lubambo, going into such a partnership should be considered carefully, as the risks are high. 

Lumambo says such an agreement might assist the youth in gaining access to markets more easily and help farmers to manage their wastage if they already have solid market base, but dealing with an offtaker who is not trustworthy could put you under a lot of financial pressure. 

“One should always make sure you deal with a reputable offtaker,” he explains.

“If they take your product and do not pay you, it will leave you in a very vulnerable financial position, as offtakers normally take 30 to 60 days to pay. This means the farmer already has to have a strong cash flow to be able to still run the business efficiently while waiting for compensation.” 

He says farmers should make sure that offtakers with whom they make agreements are the real deal.

“It is even better to offset some of your overflow products to neighbours or the farmers in the community that need it.” 

For more information, visit www.afgri.co.za

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