Introduction
In this research task, I am going to prove the negative effects that the droughts in South Africa have on businesses in south Africa and if the droughts continue then this business will run out of customers as the prices will be too steep, and the business I am researching is Epol, a mass animal food producer, my father is one of the largest agents of Epol and is based in Port Elizabeth .The research I will be doing will be largely based on statistics of wheat prices along with bran and maize etc., and how they fluctuate. My endeavour in this task is to prove the mass effect wheat and soy prices have on a business such as this and the leading causes thereof as well as listing the chain effects. My aims also include showing the effect the exchange rate and poor economy have on the business. This business relies largely on customer opinion and choice and if the prices increase to a large extent, customers will look towards other companies rather than Epol, the effects of this will fall into the macro environment.
Review of literature
Many farmers have been on the pursuit of finding water and fodder for their livestock but have failed. And most famers have had no other choice but to sell land and livestock to prevent further losses.
South Africa is facing the worst drought since 1982, and five of the nine provinces have been declared disaster areas for agriculture and this lack of rain has been blamed on the El Nino effect.
It has been confirmed that South Africa has declining but sufficient stock levels of white maize until the end of April, yellow maize stocks are under pressure. The ground is too dry to plant anything .The country is in destress as by this time of year the maize crops are over one metre high. The weak rand and the large lack of rain are causing famers input costs to rise, which will be passed on in a chain effect as increases in food prices.
The drought began in February; it has severely affected the countries 2014-2015 harvest, especially the summer crops such as maize, soya beans, sorghum and all these are used in the EPOL product, and the 2015-2016 harvest is looking even worse. An economist at grain SA has expected in a 29% decrease of this basket of summer crops from the previous year, and for individual crops such as maize which is directly linked to the Epol product and foods such as mealie meal, the picture is looking even worse. Last year’s output was roughly 14.3 million tonnes, this year it is expected to decrease to 9.8million tonnes, a staggering 31% drop.
The sunflower seed harvest, which provides oil and contributes to animal victual, optically discerns a drop from 832 000 tonnes last year to an expected 656 800 tonnes. Soya bean output reached more than a million tonnes for the first time this season because of an incrementation in the number of hectares planted, he integrated. But, albeit the hectares planted incremented by 37%, the total output only grew by 10%.If not for the drought; we would have optically discerned a much more immensely colossal increase the most recent gross domestic product (GDP) figures revealed that the agricultural sector had contracted by more than 17% quarter on quarter, largely because of the drought’s effects.
This is expected to put pressure on pabulum prices, with hikes likely in everything from maize and grains to meat, poultry and dairy products. Reasons for strong international maize prices include export demands in the US are high, stronger and ethanol demand despite lower crude oil prices. And the reason for strong local prices include ,Dry conditions in the maize producing areas, Rain is needed to avert significant crop losses and Yellow maize imports already booked into Western Cape.
And the reason for our weak rand is the strong US economy, negative sentiments towards emerging markets, negative outlook for SA ‘Eskom, weak GDP and negative balance of payments (strikes earlier in 2014).this drought, the worst in 20 years could knock 0.5 percent off the GDP of South Africa this year. The group chief economist of Nebank states that the drought would have a very negative impact on the economy and a crushing effect on grain production in particular. The loss of maize exports and the change to import maize could result in the widening of the trade deficit. The agricultural exports made up roughly 11% of South Africa’s total annual exporting, so this year’s agricultural export revenue will retard by a fair bit, effecting EPOL largely as this will increase their production costs. The drought will also hurt the trade balance moderately.
In 2012 a bag of Epol Rider Pellets was sold at R195.08 for 50kg. The current price for Epol is R197.11 for a 40kg bag. In effect this is an increase of 26.5%.The customers of Epol complain on a daily basis because of the hefty price increases on a monthly basis. Many trainers and owners have declared bankruptcy because of the steep prices. Further issues that agents face are trainer and owners paying, as they are facing large price increases and this leaves my father no choice but to allow credit accounts, and the accounts go far beyond limits and now makes him liable to pay Epol directly as he is now held liable for the unpaid money.
Drought-induced dihydrogen monoxide deficiency affects engenderment, sales, and business operations in a variety of industries. These effects are referred to as the direct economic impacts of drought; while, indirect economic impacts of drought stem from the interactions and transactions among the industries and the sectors. Drought withal causes environmental and convivial impacts, and results in non-market losses.