Comparing the financial benefits of different grain production systems in South Africa’s summer rainfall region

Mary Maluleke; Nic van Schalkwyk; Anika de Beer; Hendrik Smith; James Blignaut; Jaap Knot; Gerrie Trytsman; Liane Erasmus

doi:10.17159/sajs.2024/17091

Authors

Mary Maluleke ASSET Research, Sedgefield, South Africa https://orcid.org/0000-0003-0715-9156
Nic van Schalkwyk Restore Africa Funds, Stellenbosch, South Africa
Anika de Beer Restore Africa Funds, Stellenbosch, South Africa
Hendrik Smith 1.ASSET Research, Sedgefield, South Africa; 2.South African Environmental Observation Network (SAEON), Pretoria, South Africa https://orcid.org/0000-0002-7472-6352
James Blignaut 1.ASSET Research, Sedgefield, South Africa; 2.Restore Africa Funds, Stellenbosch, South Africa; 3.South African Environmental Observation Network (SAEON), Pretoria, South Africa; 4.School for Public Leadership, Stellenbosch University, Stellenbosch, South Africa https://orcid.org/0000-0001-7059-9010
Jaap Knot ASSET Research, Sedgefield, South Africa
Gerrie Trytsman ASSET Research, Sedgefield, South Africa
Liane Erasmus ASSET Research, Sedgefield, South Africa

DOI:

https://doi.org/10.17159/sajs.2024/17091

Keywords:

crop production systems, conservation and regenerative agriculture, financial analysis, investment J-curve

Abstract

There is growing evidence that soil degradation, among other factors, has led to both the decline and constraint of agriculture in southern Africa. Conservation and regenerative agriculture (CA/RA) have been proposed as a grain crop production system that could slow down, halt or even reverse some of these disturbing trends. But the question remains whether it is financially viable. We sought to find an answer to this question by comparing the financial returns of a CA/RA system over a 20-year period to its alternatives, namely conventional tillage (CT) and no-tillage (NT) production systems. The cumulative free cash flow (CFCF) of the average between the realistic and conservative CA/RA scenarios in year 20 is considerably higher than that of the other systems under investigation. The CFCF for CA/RA in year 20 in Mpumalanga is estimated to be ZAR86 million, compared to -ZAR51 million for CT and about ZAR4 million for NT. That is a net difference between ZAR137 million (compared to CT) and ZAR82 million (compared to NT). In the Maluti area, the CFCF for the CA/RA production system is estimated at ZAR26 million, compared to -ZAR66 million for CT and -ZAR19 million for NT. In the North-West production area, the CFCF for the CA/RA production system is estimated at ZAR35 million, compared to -ZAR9 million for CT and about ZAR21 million for NT. The differences between the CFCF of the CA/RA system and the other systems represent the financial opportunity cost of not converting to the CA/RA system.

Significance:

Soil degradation leads to both the decline and constraint of agriculture in southern Africa.
Conservation and regenerative agriculture (CA/RA) have been proposed as a grain crop production system that could slow down, halt or even reverse some of these disturbing trends.
CA/RA are financially more viable in three grain production areas of South Africa.
The cumulative free cash flow (CFCF) CA/RA in year 20 is considerably higher than that of the other systems.
The differences between the CFCF of the CA/RA system and the other systems represent the financial opportunity cost of not converting to the CA/RA system.