agricultural production guidelines
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Veld in KwaZulu-Natal
Co-ordinated Extension KwaZulu-Natal Veld 3.7 1999
ECONOMIC ASPECTS OF VELD MANAGEMENT
J M B Smith
KwaZulu-Natal Department of Agriculture
Economic
Return from Livestock Enterprises
Financial Aid
Economic Evaluation of
Development
INTRODUCTION
Farmers are basically concerned with economics. In the management of veld the improvement or deterioration of veld condition is usually insidious and seldom has spectacular economic consequences in the short term. Because of this, farmers are reluctant to invest large sums of money on fencing and water development for dubious short-term ecological and economic benefits. Therefore a long-term view should be taken of veld.
The veld is the source of the livestock producer's income, as his animals are simply a means of harvesting the grass and converting it into a marketable product. The more productive the veld becomes, the better will the animals perform and the greater will be the profitability of the livestock enterprise. A cow consumes approximately 10 kg dry matter, or about 40 kg of green grass, a day. However, the cow has a limited time to graze and, under normal conditions, will spend approximately 8 hours grazing, 8 hours ruminating, and 8 hours resting each day. During this short grazing period, conditions should be optimum to fill the cow's rumen. The quantity, quality, height of grass and the opportunity to select grazing should be such so as to allow the animal to meet its requirements. The livestock producer can control these factors to a large extent by applying the correct stocking rate and grazing rotation. To achieve this, a suitable camping system and adequate stock watering points are required.
ECONOMIC RETURN FROM LIVESTOCK ENTERPRISES
The return on capital investment in a livestock enterprise is generally very low in comparison to other farming enterprises such as timber, fruit or cropping, because the market price of land exceeds the productive value of land for livestock enterprises. The return on capital for livestock produced on veld is about 6%, which usually necessitates that capital borrowed for development should have a long period of redemption at a low interest rate.
Farmers who are prepared to develop their properties according to an officially-approved farm plan can make use of a number of financial aid schemes. Fencing and stock watering are included in these schemes. Note that the tariffs are updated from time to time and are likely, therefore, to differ from those given in the examples presented below.
There is a subsidy tariff available on fencing to promote rotational grazing and resting of veld. This tariff is determined from time to time based on average country-wide costs. For example, the 1991 subsidy on a six-strand fence was approximately 25% of the total cost of erecting the fence. In 1996 the subsidy was between 10% and 15% of the total cost.Fencing
Stock watering
A subsidy is available on stock watering. It includes dams, reservoirs, drinking troughs and piping, and is based on tariffs using the average country-wide costs. In 1991 this subsidy amounted to about 25% of these average costs. As indicated above, the subsidy for 1996 ranges between 10% and 15% of the total cost.Loan scheme for soil conservation works
On application, loans are available to farmers for the erection of fencing and the establishment of stock watering points based on actual costs of construction. The interest rate of the loan is 8%, with a negotiable redemption period of up to 20 years.Details of the subsidy and loan schemes can be obtained from the KwaZulu-Natal Department of Agriculture. (Be aware that there are certain conditions associated with the subsidy and loan schemes.
ECONOMIC EVALUATION OF DEVELOPMENT
A simplistic approach to evaluate the cost of any additional development for the implementation of a sound veld management system would necessitate the assessment of the extra income livestock would have to generate to redeem the capital cost involved. The evaluation procedure is described below.
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Determine the present gross margin, or, if practical, the net farm income per Animal Unit (AU), ensuring that the grazing capacity is within limits of the recommended grazing capacity for the farm's stage of development. On an overstocked farm, grazing will derive very little benefit from development.
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Plan the required number of camps, taking into consideration the veld type units, veld condition, grazing capacity and potential stock-watering sites.
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Determine the proposed fencing and stock-watering costs.
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Subtract the financial subsidies from the capital cost of development.
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Determine the interest and redemption of capital costs of additional development.
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Add a maintenance cost for the proposed development to the interest and redemption.
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Assess the extra income the livestock would need to generate on a AU basis to redeem the capital and maintenance costs.
An example of the economic evaluation (the figures below apply to 1993 prices)
| Fencing: 14 km @ R3 000/km | R42 000 |
| Less subsidy: 14 km @ R750/km (25%) |
R10 500 |
| R31 500 | |
| Stock watering: | R35 000 |
| Less subsidy: 25% of cost | R 8 750 |
| R26 250 | |
| TOTAL: | R57 750 |
| Interest and redemption (annual): 20 yr @ 8% on R57 750 |
R 5 885 |
| Maintenance cost @ 5% on R57 750 | R 2 888 |
| TOTAL: | R 8 773 |
| Extra income required per annum 570 AU at R15.39 per AU |
R 8 773 |
This means that, for example, if the present net farm income per AU is R120, then the future net farm income per AU should be R135.39 to redeem the loan, provided that the variable costs of production (supplementary feeding, labour, etc.) remain constant. The question is, can this be achieved?
Adequate development, which enables the application of judicious veld management principles, should result in a healthy and productive grass sward. This should lead toProduction achievements
enhanced animal performance through increased weaning mass, or increased calving percentage, or increased grazing capacity, or a combination of these increments.
Assume that the present level of production results in 70% calving and 180 kg weaning mass, and the price for weaners is R2.75 per kg and cull cows R2.25 per kg. This would mean that for every 100 AU, 60 cows will be bulled, producing 42 weaners weighing 180kg, of which 30 will be sold together with 12 cull cows with a mass of 450 kg.
Production increments could then be assessed as follows.
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Increased weaning mass. Assume that, as a result of a more productive grass sward, the weaning mass increases by 20 kg (i.e. 180 kg to 200 kg). This would mean that (30 weaners x 20 kg x R2.75) R1 650 extra income, or R16.50 per AU could be achieved. This could redeem the loan required.
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Increased calving percentage. Assume that, due to improved veld management, the calving percentage increases by 5% (i.e. 70% to 75% ) 45 weaners). This could result in 3 additional weaners being sold, returning R1 485 (i.e. 3 x 180kg x R2.75)or R14.85 per AU. This very nearly meets the extra income of R15.39 required per AU.
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Increased grazing capacity. Assume that with better veld management, the total stocking rate can be increased by 10% (i.e. 100 AU to 110 AU). This would mean that now 66 cows could be bulled, producing 46 calves (at 70% calving) of which 33 weaners and 13 cull cows are sold. This would amount to an extra 3 weaners (x 180 kg x R2.75) and 1 cull cow (x 450 kg x R2.25), returning R2 498 or R24.98 per AU based on the original 100 AU. This would more than meet the extra income of R15.39 per AU required to redeem the loan.
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Increased weaning mass, calving percentage and grazing capacity. Usually, as the productivity of the veld improves, the resultant increase in livestock production is due to the combined effect of weaning mass, calving percentage and grazing capacity. Taking the previous example into account, the combined effect of production could result in 50 weaners (66 cows at 75% calving) being produced of which 37 would be sold together with 13 cull cows. The extra income generated could be 7 weaners x 200kg x R2.75, plus 1 cull cow x 450kg x R2.25 = R4862 or R48.62 per AU. This amount is far in excess of the R15.39 per AU required.
Conclusion
A farmer making use of one of the financial aid schemes could develop his farm adequately by implementing a sound veld management system. This should result in enhanced livestock performance, sufficient to redeem the loan for the capital development.