GM-Maize-Report

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Operatives Act, competition was prohibitedbetween the regional (farmer owned) cooperatives,resulting typically in one siloconstituting its own market for up to 60 kmin all directions. Thus, when the large cooperativesprivatised during the 1990s, the newcompanies held de-facto storage monopoliesacross large swathes of South Africa’s maizetriangle. The three major silo owners, Afgri,Senwes, and NWK (who have all long sincediversified into fully fledged agribusinesses)between them own 74% of South Africa’s maizesilo capacity. 69 Afgri emerged from the old Oos-Transvaal Ko-Op in present day Mpumalanga;NWK is the former Noordwes Ko-op; whileSenwes’ principle area of grain handlingoperations is in the Free State.These three giants of South African agriculturehave extensive interests throughout thevalue chain, and have formed a number ofstrategic partnerships among themselvesand with other international agribusinesscorporations. In 2011 Senwes announced ajoint venture with Bunge, one of the world’slargest grain traders. 70 In April 2012 Senwesand NKW merged their respective insurancebusinesses into one entity, while a year laterthe Competition Commission approved themerger of Afgri and Senwes’ retail operations.In September 2013 logistics firm Grindrodacquired a 20% stake in Senwes for R444million. Grindrod are 23.5% owned by Remgro, 71the R105 billion investment conglomeratefounded and controlled by the Rupert family.Remgro’s other investments in the foodindustry include Rainbow chicken, TSB sugar,and Unilever. 72At the time of writing the future of Afgriremains unclear. In September 2013 it wasannounced that the company, the largestsupplier of John Deere tractors on the Africancontinent, was subject to a R2.6 billion bid fromMauritius based investment group AgriGroupe.According to AgriGroupe, about 70% of theinvestors in the proposed deal are based inNorth America. 73TradingUnder the old single marketing channel, theMaize Board would buy all the maize at thetime of harvest (at a guaranteed fixed priceto support the farmer) before selling to thevarious maize millers. This all changed in 1995,when maize began to be traded on the SouthAfrican Futures Exchange (SAFEX), and the priceof maize became subject to market forces, withprivate grain traders stepping into the rolethat had been left vacant with the dissolutionof the Maize Board. As well as domestic andinternational supply and demand, the US dollarexchange rate also has a major impact on theSAFEX maize price (the United States is theworld’s largest producer and exporter of maizeand therefore has a profound influence on theglobal maize market). 74Grain on SAFEX must be traded in the form ofa negotiable instrument that can be tradedmultiple times, an instrument referred toas a silo certificate. A maize silo certificateis issued when a farmer delivers 100 tons ofmaize to the silo (the maize could be deliveredincrementally, but the certificate will only beissued at the 100 ton mark). While in storagethe maize remains the property of the farmer,who can choose when to sell the certificate. OnSAFEX, grain, including maize, trades on a ‘spot’market (i.e. the price for that day) and a futuresmarket. There are five futures options on SAFEX,each expiring on the sixth last business day ofMarch, May, July, September and December.Buyers (millers or traders) and sellers (farmersor traders) of maize use the futures market to‘hedge’ against perceived risks in the future.For example, in November (the beginning ofthe growing season in South Africa) a farmermay be concerned that by July (when themaize harvest begins) the maize price willhave dropped, and will therefore agree to sell aportion of their future harvest at the prevailingJuly futures price (if the maize price actuallyrises over the course of the season they willlose out, as they will be obliged to sell at theagreed lower price).A miller, on the other hand, will always seek tobuy at the lowest possible price. If, for example,during August the maize price is low, themiller, who needs to buy maize throughout theyear, can purchase a November maize futurescontract (the price of which will be determinedby the lower spot price) and thereby protectthemselves against any price increases. Again,if by November the maize price has fallen theGM Maize: Lessons for Africa 19
miller will lose out, as the November futurescontracts they have will compel them topurchase at a higher price. As a rule of thumb,farmers typically sell 30% of their crop beforethe harvest, 30% at harvest, with the balancebeing carried for a longer term to sell later inthe season. 75There are 56 official traders listed on SAFEX 76 ,ranging from small local firms to the largestinternational financial institutions and traders.Many of these traders will never physicallyhandle any maize, but are speculators seekingto profit from price movements over time; theelectronic trade in silo certificates on SAFEXexceeds the physical quantities of maize tradedby a factor of eight, while it is not unusualfor a silo certificate to be traded up to 25times. 77 Cargill and Louis Dreyfus, two of theso-called ‘ABCD group’ of international graintraders, ‘dominate’ maize trading on SAFEX 78accounting for up to 70% of trades, accordingto some sources. 79In any commodities market there are risksof speculators manipulating prices. Duringthe 2001/2 maize price spikes, one firm inparticular, W. J. Morgan and Associates, wasalleged to have adopted a ‘controversially large’position in support of higher maize prices. Thefirm’s activities were further strengthenedby its ability to trade on behalf of the JointMunicipal Workers Pension Fund. At this timethere were no position limits 80 on white maizecontracts on SAFEX. In their written submissionto the Food Price Monitoring Committee(FPMC), SAFEX estimated that this lack ofposition limits increased the price of maizefrom 2–10%. As a result, positional limits onwhite maize were instituted from the July 12003. 81 In October 2003 a SAFEX disciplinarycommittee fined and expelled W. J. Morganand Associates, and its two directors, from theexchange. 82This node of the value chain (that connects thefarmer to the processor) is further complicatedas some of the largest silo owners are alsotraders. For example, during 2003/04 Senwesand Afgri were estimated to account for morethan 30% of the grain traded on SAFEX. 83 Thisis important as the price a trader will buy and/or sell maize at is based on the SAFEX priceplus transport, storage and handling costs,as well as their own commission. Transportcosts (known as ‘the transport differential’)are calculated on the cost of transportingthe maize, by rail, from the specific siloto Randfontein, where, historically, manyprocessors were located. This method is notwithout its critics: Grain SA, who representsthe interests of commercial grain farmers, hascalled for a review of the way the differentialis calculated, a call that was rejected by theNational Agricultural Marketing Council(NAMC). 84Storage costs are also set by SAFEX, thoughthere is some debate within the industryas to whether these tariffs are the result ofnegotiation between all relevant actors ormerely the subject of a diktat from the siloowners. In February 2009, following overfour years of investigations and hearings, theCompetition Tribunal ruled that Senwes hadabused its dominant position in the maizestorage market by offering lower storage coststo farmers who agreed to sell maize to theirtrading division. 85Handling and storage costs (as well ascommissions paid during maize procurement)contribute to the ‘mill door price’, the price amiller will pay for a certain quantity of maize.As seen below, during 2011 (the latest availabledata) storage, handling and commission costsequalled 19% of the mill door price, whichtranslated into 7.1% of the retail price for supermaize meal.– Storage,handling (%of mill doorprice)– Storage,handling (%retail price)Milling and retail2003 2009 2010 2011- 13 20 196.5 6.5 7.7 7.1From receipt of raw grain maize at the milldoor to the retailing of super maize mealentails a number of processes and costs. Thesecosts could be specific to the maize millingindustry (such as the price of maize) or subject20 AFRICAN CENTRE FOR BIOSAFETY
Page 1 and 2: GM Maize:lessons forAfricacartels,
Page 3: The African Centre for Biosafety (A
Page 6 and 7: industries in South Africa and GM l
Page 8 and 9: South Africa remains the only count
Page 10 and 11: most important early role in Africa
Page 12 and 13: significant changes in the finance
Page 14 and 15: up domestic grain market by impleme
Page 16 and 17: The South African maize seed market
Page 18 and 19: Concentration in the South African
Page 22 and 23: to the vagaries of the wider econom
Page 24 and 25: The South African maize to super-ma
Page 26 and 27: Can small scale millers reduce maiz
Page 28 and 29: GM maize in South AfricaSeasonGM se
Page 30 and 31: ACB GMO testing on food products in
Page 32 and 33: Premier FoodsThe Premier Foods stor
Page 34 and 35: YearTotalGroupturnoverAftertaxprofi
Page 36 and 37: • 51% the East African Group base
Page 38 and 39: investment arm of Grain Trader Suid
Page 40 and 41: Maize meal brand popularity by firs
Page 42 and 43: Annex 1Field trials for GM maize va
Page 44 and 45: 43 Pray, C., Gisselquist, D., Nagar
Page 46 and 47: http://gmwatch.org/index.php/news/a
Page 48 and 49: http://www.africantrader.co/website
Page 50: PO Box 29170, Melville 2109, South

GM-Maize-Report

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