Grain storage industry seeks sustainable solutions

Estimated reading time: 9 minutes

The Agbiz Grain and Oilseeds Value Chain Symposium held as a hybrid event in Pretoria from 5 to 8 September, explored various issues and opportunities for the grain storage industry in South Africa. The symposium consisted of four sessions, each covering a different theme related to the profitability, traceability and risk management of the grain and oilseeds sector.

The sustainability of the storage sector and return on investment

The current benchmarking of storage rates is limiting reinvestment into South Africa’s silo structures. This was indicated during the first day of the event.

Ferdi Meyer is the managing director of the Bureau for Food and Agricultural Policy (BFAP) and he explained that the producer price index (PPI), which is used by the South African Futures Exchange (Safex) to set standardised storage rates, does not match the actual storage costs. He said that it was essential to find a better way to measure the costs of storage. However, he also indicated that this would require collecting data, which could raise Competition Commission issues. He advised that this issue needed to be handled with great care.

The commodity derivatives manager of the Johannesburg Stock Exchange (JSE), Vuyo Mpumza, said that the JSE aimed to create a space that supported the optimal functioning of the free market. “To attain this goal, it is crucial that we should be able to standardise the system. Therefore, we do need to have a single standardised pricing system.”

Tom Meintjes who is the vice-chairperson of Agbiz Grain, said that in the past, marketing boards regulated all aspects of commodity trade. Now, only some aspects are regulated to create a functional free market. “Technically, a storage operator doesn’t need to charge JSE silo rates, but the JSE’s rates have become the norm,” he said.

Francois Strydom, CEO of Senwes, said storage operators have to follow the rules of capital or face economic realities. He said the current return on investment on silo structures does not encourage reinvestment, which shortens the lifespan of these national assets.

He also said that storage operators could reduce their costs by increasing their intake speed and adding technology such as driers to improve their service delivery. “It costs R6 000 per day to rent a link, regardless of how many times you can move it. However, if you can move it more, you can cut your costs per ton significantly,” he said.

Dominique Arteiro, competition specialist at Werksmans Attorneys, said Agbiz Grain must be careful when exchanging competitively sensitive information. He said if the organisation wanted to find an alternative way to discover storage prices, they had to study the matter further and apply for exemption from the Competition Act, 1998 (Act 89 of 1998). “You cannot ask for forgiveness later. If there are any grey areas, you need to come clean before doing anything.”

Read more about Agbiz’s engagement with Eskom here.

Access to stock, concentration risk and price convergence

Access to stock, concentration risk and price convergence were discussed during the second day of the Agbiz Grain and Oilseeds Value Chain Symposium.

Grain SA‘s chairperson, Derek Mathews, said storage operators had to improve their performance and meet the free market’s demands. “This might mean that a silo will have to deregister as a JSE silo. However, my feeling is that the silo will step up to the plate, increase its grain-handling capacity and then reregister again as a stronger competitor.”

Dr André van der Vyver, executive director of the South African Cereals and Oilseeds Trading Association (Sacota), said owning grain (a silo certificate) was useless if the owner could not access the stock physically. He said this was the key issue.

The JSE’s senior commodity derivatives officer, Anelisa Matutu said her team researched the bottlenecks in the system for the past eight months. She said stock access was an issue, but it is not the only one grain traders face.

Chris Sturgess who is a JSE consultant, said the JSE holds its storage operators to a high standard. For example, a silo has to offload 500 tons of stock per day to be a JSE silo. He said this is not easy. He also said that increasing the offloading capacity by 100 tons per day would disqualify 120 of the current 180 JSE silos.

Jerry Maritz, Agbiz Grain’s chairperson, said communication was very important. He said registered owners should give storage owners notice if they wanted to offload a large volume of stock. He said this would make it more realistic to expect to be accommodated. “With advance communication, all parties can plan for physical delivery of stock.”

The application of traceability and regulatory compliance in grain storage

The symposium’s third day focused on the application of traceability and regulatory compliance to grain storage. This was the only session that included panel members from across the globe.

The former CEO of Grain SA and the National Chamber of Milling, Jannie de Villiers, chaired the session and said traceability in the grain sector was a complicated challenge. He said young people might think technology could solve everything, but it was not that simple and that more work was required.

Casper Schmidt, Agbiz Grain’s executive committee member, said South Africa was still in the early stages of grain and oilseed traceability. He indicated that some storage operators were more advanced, while others were behind.

However, it was important for the entire industry to get together and figure out what the South African need is. “Storage operators need to service the market, so if the market wants a specific service, we need to answer the demand,” Schmidt says.

Dr Francois Koekemoer, Syngenta’s cereals lead for research and development in Sub-Saharan Africa, said greater traceability could benefit the sector. He said some wheat cultivars were grown with specific types of milling in mind. He said if the industry had greater traceability, they could sell and deliver the right cultivar to the right processor or miller.

Paul Adams, senior manager of research and development at Pepsico Global Supplier Quality Assurance, said grain and oilseeds traceability was a global problem. He said consumers, non-governmental organisations and governments wanted more information regarding their food’s origin.

David Meder of Groupe EMC2/Cerest-Céréales de l’Est in France said French grain producers cannot sell their grain directly. He said grain has to be sold through a certified grain collector and that full traceability was required from the farm to the final product and the requirements were getting stricter. He mentioned that the information was becoming more digitised and that France hoped to detect any pesticide molecule in grain in the future.

According to Dr Charles Hurburgh, a biosystems engineer at Iowa State University, the Unites States (US) Food Safety Modernization Act, public law 353, (FSMA) is more of an audit requirement, driven by consumers’ awareness of mycotoxins. He added that grain producers and handlers, including storers, are essentially exempt from the FSMA. The US is ramping up its ability to track market items, not just food or grain. “Technology is assisting the process. However, it all comes down to what the consumer is willing to pay for the product because they will have to pay for it.”

The insurability of the storage sector

The final day of the symposium focussed on insurability.

Kobus Truter, Absa‘s head of structured commodity finance, compared insurance to a parachute. He said if it was not there the first time, it will likely not be needed again. “If you don’t wear a parachute, what are you risking? Your leg? Your back? Insurance is not a luxury, it’s a necessity.”

Gerard Ramage, the VKB Group’s safety, health, environment and quality manager, said some of South Africa’s silos were old, but storage operators kept them up to date and compliant with insurance regulations. Despite this, poor municipal service delivery changed the risk profile and now there is the risk that a fire might not be put out in time, because there was no water.

“It’s also important to remember that there is an aspect of brand management when it comes to risk management,” Ramage said. He added that something such as a listeriosis outbreak could have a serious impact on a company’s image.

Ebbe Rabie, managing director:Speciality at Price Forbes, said if a storage operator passed all the audits, its premiums would be low. “If you haven’t had claims in the past five years, you won’t have any claim. But if you have had a fire or something similar, it indicates that you don’t take care of your assets and that makes you a higher risk.”

Rabie also said all role-players had to educate themselves and study more, to understand risk and silos better. “An underwriter might require a sprinkler system in a silo, but that is possibly the worst thing you can do because water and grain do not mix well in a storage setup.”

Santam Insurance’s national survey manager, Sean Harper, said risk started with the silo storers and their decisions. He said their decisions were more important than the issues around them.

Letisha van den Berg, director of the Aggregate Sand Producers Association of Southern Africa (ASPASA), indicated that insurance compliance should not be too hard for smaller businesses to implement. “We must remember – your risk perception and my risk perception are not the same. We need to remember that bigger businesses and smaller businesses are different.”

Zhann Meyer, Nedbank’s head of global commodity finance, agreed that insurance was not one size fits all. “Height is riskier for a cement silo than for silo bags. So, we need to take a ‘horses for courses’ approach to insurance.”

Ramage said it costs millions of rands to install the equipment to reduce risk as much as possible and it would be nice if storage operators could see lower insurance premiums. – Susan Marais, Plaas Media

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