Grain SA has added its voice to other agricultural organisations and farmers opposing a Johannesburg Stock Exchange (JSE) decision to discontinue the soybean Multiple Reference Point (MRP) model and return to a Single Reference Point (SRP) methodology will cost R600 million in value, putting more pressure on the farmer.
The decision by the JSE kicked up such opposition this week that some agriculture organisations and and farmer organisations marched to the JSE in protest this week. Grain SA said late last week that the JSE has decided to oppose Grain SA’s interdict application challenging its decision to discontinue the soybean Multiple Reference Point (MRP) model.
“Our analysis shows that the average transport deduction under the MRP methodology is approximately R113 per ton, compared with about R333 per ton under the single reference point system. That is a difference of approximately R220 per ton. Across the relevant soybean volumes and silo points, Grain SA estimates the total difference at approximately R696 million.”
Grain SA added that this is money that disappears somewhere in the value chain.
“For producers, a higher differential in the JSE futures contract increases the potential for higher deductions from the price they receive for their soybeans in the cash market. At the same time, unnecessary inefficiencies and additional costs in the movement of grain can affect the broader food value chain - from processors and manufacturers through to consumers.”
Dr Tobias Doyer, CEO of Grain SA, said that farmers are being asked to accept a system that, on their calculations, adds significant costs to the value chain.
“The question South Africans should be asking is simple: if there is a more efficient way to move grain from where it is produced to where it is processed, why should the system allow hundreds of millions of rand in additional cost?”
Grain SA said that the difference between the two approaches is straightforward.
“The Multiple Reference Point model considers where soybeans are actually available, where processing demand exists, and the most efficient route between the two. A single reference point calculates the differential in relation to one central point, even when the soybeans may, in reality, move in a completely different direction to reach a processor or buyer.”
Dirk Strydom of Grain SA said that the principle behind the MRP model is actually very simple: match available grain with processing demand using the most economically efficient route.
“If soybeans are produced in one area and the natural buyer is significantly closer than the single reference point, it makes little economic sense to calculate the price as though that grain must first move towards the reference point and provide market power with the possibility to abuse prices given the published standard and no transparency regarding premiums in the physical market,” he said.
“That creates a theoretical transport cost that does not necessarily exist in the physical market.”
Strydom added that when you apply that difference across the market, it becomes substantial. Grain SA’s calculations indicate a difference of approximately R696 million between the two methodologies.
“That is why this cannot simply be dismissed as a technical debate about a transport differential - it is about whether the pricing mechanism rewards efficient movement of grain or builds unnecessary cost into the system.”
Grain SA said that they believe this creates an unnecessary inefficiency that should concern both farmers and the public.
Doyer said that this is bigger than a technical disagreement between Grain SA and the JSE.
“If an unnecessary cost is built into the system, somebody ultimately pays for it. The farmer may receive less, costs may move further through the value chain, or both. South Africa cannot afford inefficiency in a food system that must serve both sustainable farmers and consumers.”
“We remain concerned that the decision to reject the MRP model was not supported by sufficient quantitative evidence and that the agreed evaluation criteria were not adequately addressed,” the organization said.
yogashen.pillay@nationalmg.co.za