By Dr André van der Vyver, University of Pretoria

Grain storage has been a politically sensitive issue since the beginning of the 20^th century. In the early 1900s there was hardly any grain storage available in South Africa and the few facilities that existed belonged to milling companies such as Premier Milling in Newtown, Johannesburg which erected some of the first, limited facilities to store flour, imported wheat and grain purchased from local farmers. It was only in the years that followed the promulgation of the South African Marketing Act in 1937, that storage was collectively built by farmer co-operatives who, as agents, stored grain on behalf of the agricultural Control Boards that was established under the same Act.

 

Figure 1: Premier Milling, Newtown, Johannesburg 1916

Source: Premier Milling, 2019

 

Significant progress was made in terms of grain storage techniques from the 1950s to the 1990s, with South Africa at times taking a global lead in some of the techniques used and achievements enjoyed. However, with the demise of the Marketing Boards in the 1990s, grain storage was overnight transferred back to the hands of the private sector – no more government grain storage contracts via control or marketing boards. Every pit stored had to be paid by either the farmer, trader or miller/processor. Grain storage became a competitive business with the ex-co-operatives, now agri-businesses, competing to offer the best grain handling and storage services to prospective clients. Farmers, who were previously members of the respective co-operatives, became shareholders and had to pay not only for storage but also for all related services such as grading, weighting, screenings, drying, etc. Farmers therefore became clients and agri-businesses had to compete for their business.

 

In the initial years after deregulation, agri-businesses dominated the grain storage industry. Very few farmers or processors had any significant storage capacity. Prior to deregulation, there was no need to maintain their own storage facilities as most farmers were fairly close (less than 20km) to professionally managed co-operative storage facilities, while processors could order grain as necessary or on a weekly basis. The on-site facilities at processors catered for off-loading, blending and probably a week’s worth of supplies. Traders did not exist. Any profits from grain storage were for the benefit of co-operative members.

 

In 2016 DAFF reported that when the maize industry was deregulated, 90% of the co-operatives converted to private companies. These private companies own 85% of the total maize storage capacity, which is currently 16.3 million tons. There are 432 silos, of which 172 are on-farm and 260 are commercial. The commercial silos, owned by 17 silo owners, account for 94% of the available silo capacity country-wide. In South Africa there are three major commercial silo owners, namely Afgri, NWK and Senwes, who own 73% of the available storage capacity within the national grain storage market. Other important players are VKB and Suidwes.

 

Capacity is by no means the only factor that determines the ability or effectiveness of the grain storage industry. Probably the second most important factor is location of an individual facility, or the even distribution of a number of storage facilities across the countryside to suit the needs of its customers. Some facilities’ turn-over in volume per year is two to three times their capacity, while others are not even filled throughout the year, i.e. less than once. Other important services include screening capabilities, the number of smaller silo bins for different grades, blending, aeration, fumigation, drying, in- and outload capabilities, etc. which all are important services in a modern competitive storage environment.

 

As more farmers divested themselves of the shares they obtained from the co-operative transition to companies, client relationships with the former co-operative were more than ever based on business and no longer on membership profit sharing. General goodwill, however, still plays an important factor in many cases. Furthermore, in a free market environment and a national economy that is growing at only around 1% per annum, competition in the grain value chain is ever increasing. Farming activities increased in size, direct sales to processors is possible, and transport from the farm (on-farm loading) to processors has become a common practise. Therefore the demand for on-farm storage and increased storage at processing facilities (mills) is on the rise.

 

By comparison to traditional storage, it is safe to say that the majority of growth in storage capacity is in on-farm storage and on-site at processing facilities. New facilities include a variety of modern techniques including steel silos, bunkers, dams and silo bags.

According to SAGIS (2018) the storage composition is as depicted in Table 1, below. These are inclusive of on-farm and processing facilities. Total capacity is estimated at 27.29 m³ of which 21.78 is suitable for summer grains only.

Table 1: Types of storage

Source: Sagis (2018)

A changing storage environment

Not too many years ago “grain was grain”, perhaps with a few different grades that were kept separate. Today the high-end of the processing and consumer market has all sorts of different requirements, ranging from different varieties catering for GMO free products, grain free of certain chemicals (used on farms) and traceability. To compound the challenges, new technologies more easily allow for accurate testing of products supplied. The outcome of this on storage trends is still difficult to predict. On the one hand, only the sophisticated commercial storage operator can provide and guarantee these services. However, if a large farming operation decides to focus on a niche market, such as GMO free white maize on-farm storage, this may offer a viable opportunity for the operation to add value.

On the subject of guarantees or insurance, obtaining financing for on-farm grain storage (i.e. the product not the infrastructure), is extremely difficult. The irony is that some farmers can afford to build the facilities but cannot afford to store the product – they need the cash for the next season. The moment there is an insurance company willing to cover grain on-farming storage risk, banks will be willing to finance the grain which will bring more demand for on-farm storage facilities.

Initially on-farm loading by transporters only occurred during harvest time and only a few mills were willing to risk taking grain directly from the farm. However, cost savings and the competitive nature of the grain industry has forced most mills to adopt this practise. As farmers started to erect their own storage facilities, this practise was extended to beyond harvesting time. On farm loading and storage complemented each other perfectly and became such a threat to traditional storage practises that some agri-businesses started to offer facilities whereby they were willing to load grain on-farm for free and transport the farmer’s grain to their traditional grain storage facilities, some of which were being under-utilized.

In the rest of this article we look at some cost comparisons:

(1) Steel silos:

Table 2: Steel silos: Indicative cost structure

Add approximately R500,000 for weighbridge (22m, 60t), incl. civils, excl. roof.

Add approximately R380,000 for cleaner with bucket elevator, 60 ton per hour.

Notes:

-       4000 ton farm system: It has a handling capacity of 50TPH, using downpipes, augers and bucket elevators. This system is not suitable for high frequency usage, and is designed to be loaded and unloaded around 1-2 times per year. Unlined ducting is used, together with lower lifespan augers instead of chain conveyors for the handling.

-       10,000 ton farm system: is an upgraded system compared to the 4,000T farm system, using chain conveyors and bucket elevators for handling at 100TPH capacity. This system is designed for medium frequency loading and unloading - 3-4 times per year. Ducting is unlined, but higher capacity, higher lifespan chain conveyors are used instead augers.

-       10,000 ton commercial system: This system is designed for high frequency use - up to 15 times loading and unloading per year. A 150TPH handling system is installed, to increase intake and discharge capacity, as this becomes a bottleneck in commercial operations, where the speed of intake and discharge of grain becomes a factor in the willingness of producers to deliver to the silo complex to avoid long waiting times for trucks to be unloaded and loaded.

 

Source: The information was kindly supplied by ABCHansen, 2019. Prices are indicative at time of writing and should not be used as a quote.

(2) Silo bags:

Silo bag operations can vary between very small and quite large. The financial and operational numbers obtained (below) is targeted towards a small commercial operation or a few farmers combining their storage. Assumptions play a big role in the cost calculations and are as follows:

-          Life expectancy (site and equipment): 10 years and more

-          Handling capacity: 27,000 tons of maize and 11,000 tons of wheat per annum storage for 60 days per commodity on average.

-          Project budgeted as a green field project and completely independent (this is seldom the case and some line items could be eliminated, meaning costs will come down).

Outcome:

-          Capital investment : R6.3 m

(this includes all civils, power supply, offices, security & fencing, grading facilities, off-loading and loading (i.e. handling-in- and -out), all equipment and vehicles, land is rented)

-          Operational expenses approximately R42/ton (excluding bag costs)

-          Cost per 180 ton bag R5600 or R31/ton (bags are used only once)

(3) Bunkers & dams:

Size matters in the cost per ton but a 20,000 tons facility will cost approximately R20 mil or R1 000 per ton. Dams can be as small a few hundred tons. Storing the product is fairly easy but the out-loading is a problem. There are three main components to the erection of bunker storage facilities, namely the civils to prepare the terrain – it should be level and compacted, the sides or walls, and the trampoline cover. Equipment for loading -in and -out, weighbridge and grading facilities are separate and depend on the size catered for.

Comparisons and interpretation:

Direct comparisons are difficult. Not only is each site different but service providers consider information to be confidential and a competitive advantage. Although verified and believed to be accurate, all prices are indicative (and ex-VAT).

Silo bags are probably the fastest growing of the three categories, however the construction of steel silos holds the biggest threat to traditional storage operators. The substantial investment required by farmers mean that they are committed to own storage for at least five years

Information on the capacity and growth of on-farm and on-site processing storage facilities is limited and often estimated. No official survey is conducted. By law, commercial farming operations are compelled to declare grain stored on-farm to SAGIS. However, grain stored and capacity to store are two different concepts. 

Agri-businesses have also countered these developments by erecting their own more cost-effective steel silos and bunker facilities in addition to their existing (mostly) cement silo structures or when replacement is required. New cement structures are not competitive anymore, therefore the choice is between steel structures and bunkers.

Silo bags, bunkers and dams are generally associated with short term storage, meaning a couple of months. Some analysts would say as little as three months, but certainly not more than a year. Grain in bags is very much dependable on the proper sealing of the grain, depriving it of oxygen. Any damage to the bags or trampoline cover by rodents, hail, handling (at storage), etc. allowing for oxygen and/or water leakage could cause damage to the grain. Once stored there is normally no ability to re-fumigate while aeration (bunkers) is also normally not possible.

Steel silos and related equipment normally require a higher capital investment. Some of the benefits are:

-       Compared to storage costs charged by the agri-businesses, pay-back for the farmer is normally achieved in six to nine years.

-       The concept of marginal cost makes this attractive for the farmer. He already owns the land, normally has services such as electricity, water, etc. at hand, labour can temporarily be allocated vs. full time in the case of most commercial facilities.

-       If the farmer’s grain happens to be ‘dirty’, the agri-business requires it to be clean and he would either pay a cost and/or lose out on the trash (broken pits, etc.), a service which could easily be performed at his own storage facilities.

-       Probably one of the main factors is the logistics (including costs) required to transport grain from the farm to the agri-business storage facilities. Trucks, trailers and drivers often have to be allocated for long periods during the harvesting season. With on farm storage facilities, grain can quickly be off-loaded and thereafter cleaned (if required) and out loaded at the farmer’s own rate. It therefore requires a lower investment in trucks, trailers and dedicated drivers. As mentioned elsewhere, on farm loading by traders is a common practise and saves the farmer transport costs and excessive investment in bulk handling grain trailers.

Agri-business storage costs

The table below outlines the storage cost for the five main agri-businesses. Today, this is a highly competitive business with each agri-business determining its own rate. What makes comparisons difficult is that agri-businesses offer several different packages in terms of which they either load grain on the farm or pay for the farmer to deliver the grain to a specific silo. This is mostly related to under-utilized silos or when they try to expand their business into neighbouring territories.

 

 

 

 

Table 3: Storage costs, summer grains, 2018/2019

Although storage packages differ substantially, we have assume a total annual average storage rate of R140 per ton for the five large maize agri-businesses. Depending on volume throughput (how many times the capacity), it is estimated that the farmer will recoup his investment in six to nine years. (Note, calculations and allocations of fixed and variable costs will differ for each operation.)

In summary, on-farm storage remains a sensitive subject. For many years, all farmers were members of their co-operatives, sharing in the benefits. Today, even though ownership of agri-businesses has changed dramatically, there is still a substantial goodwill left. However, in a competitive free market environment, it makes business sense for some farmers to erect their own on-farm storage facilities. This trend is likely to continue. Nevertheless, in a dynamic storage environment, agri-businesses are continuously offering new storage packages. Before taking any decision, a farmer should do a detail cost comparison as it applies to his farming operations and with actual quotes from suppliers.

References:

ABCHansen (2019) Unpublished information.  www.abchansenafrica.co.za .

DAFF (2016) Unpublished Report. Directorate Statistics and Economic Analysis. Pretoria.

Premier Milling (2019) www.premierfmcg.com

SAGIS (2018) www.sagis.org.za

 

Compiled on 24 January 2019

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