Senwes 110 - The arrival of the free market and the dissolution of governing bodies

04 July 2019
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Senwes Scenario

The arrival of the free market and the dissolution of governing bodies resulted in the liberalisation of markets and ushered in a new era for agricultural marketing in South Africa. It resulted in more transparency in respect of price formation and producers had to learn marketing skills. A short overview of the process is provided below.

FROM THE 1930’s

The agri-sector functioned as a single channel market system from the early 1930's and decisions regarding prices were made by the government and the governing bodies involved.
The Marketing Act came into being in 1937, in terms of which government interference and control over the economy of the country increased.
However, there were shortcomings which contributed to controversial opinions regarding a single channel market system. • One of the biggest shortcomings was price movements between agricultural and non-agricultural products, which had a direct impact on the buying power of producers.

FROM 1994

Slack economic circumstances and challenges such as droughts, democratisation of South Africa in 1994, land appropriation, land issues and international competition resulted in the necessity for change in the agri-sector.
The regulated system in which the agri-sector functioned, was seen as exclusive and a system in which producers merely had to accept prices.
Liberalisation of the agri-sector by the government was the first step to overcome the shortcomings in the industry.
The regulated market in which agriculture functioned, changed to a free market system in 1995.
The change to a free market system where prices are determined by supply and demand, was motivated by the need to allow all citizens access to the agricultural sector.
The arrival of the free market resulted in governing bodies being terminated, one after the other.
Amongst others, the free market system replaced the Maize Board in 1995 and the Wheat Board in 1997.
The South African Futures Exchange (SAFEX) took over the role of grain governing boards.
Market participants resulted in government no longer being the only price determining body and supply and demand (SAFEX) now determined the price of negotiable commodities.
The first grain contracts were listed on SAFEX in 1996, followed by wheat contracts in 1997, sunflower contracts in 1999 and soybean contracts in 2002.
The conversion to a free market system required new skills and adjustments.
It was essential for Senwes to think and act proactively.
Senwes converted from an agricultural co-operative to a profit-making company competing in the free market on 10 April 1997.
This change resulted in restructuring and expansion, as well as a stricter credit policy.
Senwes’ grain storage business managed to remain profitable, despite the conversion.

1998 UNTIL AFTER THE 2000's

Further transformation would be required from Senwes for the period between 1998 and 2009 in order to function profitably within the free market system, such as including different racial groups, black economic empowerment and the accommodation of different language groups.
Irrespective of the transformation and adjustments required by the new market system, Senwes achieved an exceptional financial milestone in 2009. The agricultural sector has thus far managed to adjust to and function within the framework of a free market system, where supply and demand determine commodity prices.

SOURCES

Tyd kweek wenners. Senwes – ’n Eeu van landbou (Elize S van Eeden) Kort en Lank van Termynkontrakte. SAFEX, Graanverskansing, Spekulasie (JM Geyser) The Agricultural Marketing Act: A PostMortem. The South African Journal of Economics Vol. 68:3 2000 September (JA Groenewald)