Die invloed van kapitaalinvesteringsveranderlikes op die winsgewendheid van koring- en mielieverbouing langs die Oranjerivier

Abstract

THE INFLUENCE OF CAPITAL INVESTMENT CHANGES ON THE PROFITABILITY OF MAIZE AND WHEAT PRODUCTION ALONG THE- ORANGE RIVER 1. PROBLEM SPECIFICATION Research methodology - The study will be completed by investigating the following: - Cost and investment changes: Compiling a study of the capital investment changes in irrigation farming along the Orange River. - Gathering of information: Collection of information regarding the changes in investment patterns by interviews and discussions with agricultural cooperatives, suppliers of capital goods, banks and other interested parties. - Literature study: Compiling a literature study to increase profit margins with financial management. Purpose of the research - Although profit margins are decreasing the study will highlight the fact that a farmer can farm profitably along the Orange River especially with tight financial management and control. - Break-even point and gross profit margins: The determining of the break-even point and gross profit margins for the years 1983 to 1986. - The influence of: * cost of capital goods, * fixed and variable cost, * the influence of finance cost.

- Recommendations and possible models/guide lines: The gross profit margins have declined over the past few years because of the rise in cost and the below average price increases of maize and especially wheat. The percentage increases for capital goods and variable cost items were as follows over the period 1983 to 1986: CAPITAL GOODS % Motorcars 108,23 Light delivery vans 140,02 Tractors 84,03 Implements 93,15 Irrigation equipment 132,52 Water rights 37,89 VARIABLE COST ITEMS % Diesel 17,22 Petrol 33,87 Fertilizer 110,31 Packing material 74,16 Repair cost 109,00 Wheat 47,81 Maize 107,22 Although the percentages could be misleading the fact remains that the rise in cost of especially capital goods is alarming and the profit margins decrease rapidly. It becomes more and more difficult for farmers to meet their commitments especially the farmers with relative high loans and those who do not practice sound farming management.

2. PRESENT SITUATION The irrigation area along the Orange River from the PK le Roux Dam to Douglas is a young irrigation area except for Douglas. The area is irreversibly connected to the Orange River for water supply for irrigation. Because of the high cost of capital goods and input costs it becomes very difficult to increase profitability. Especially in the light that some farmers make use to a large extend of borrowed capital. This influences the financial leverage negatively especially with the high interest rates. The problem increased when the farmers borrowed money on the market value of. the farm and not on the productive value. It required a great deal of financial discipline not to borrow money on the market value of a farm. Because a great portion of the irrigation equipment is imported the exchange rate is a major factor in price increases. The De Kock report also led to the implementation of GST (General Sales Tax) which increased capital cost. The high percentage of fixed cost as a percentage of total cost is also a worrying development especially with the low price increase of maize and wheat. This influences the break-even point negatively. Because of the seasonal income of this type of farming financial control is of the utmost importance. (The farmer must keep a good set of books.) 3. SOLUTIONS/PROPOSED SITUATION There is a way to run an irrigation farm profitably in spite of all these negative circumstances. Sound financial management and planning form the basis of profitability. Knowing the output potential of the farm and what you can expect from it goes hand in hand with profitability because only then, can you plan and manage for profit. There are a few financial aids the irrigation farmer must utilize to plan for optimum profitability. The most important is the budget in all its contexts. To manage money properly one of the most reliable budgets to use is the cash.flow budget. The farmer must be realistic in the preparation of a budget and always keep in mind the potential of the farm. ...