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Edition 31

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In Today’s Email:

• Is the Cost of Macadamia Farming Overpriced? 🤔

• Submit Your Classifieds! 📬

In today's edition, we're deviating slightly from the norm!

Instead of slotting this topic in one of our Question, Upskill or Info sections, let's tackle it head-on in one comprehensive, juicy piece.

Enjoy! 🤓

Have you ever thought: 

Is The Cost of Macadamia Farming Overpriced?

Well, recently we’ve been having a few interesting conversations at TropicalBytes and this very question got us thinking… So, we put our thinking caps on and got to work.

Now, what exactly are we thinking here?

Well, everything – the machinery, the farms, the suppliers… Are these expenses justifiably steep, or are we (the macadamia industry), unknowingly, being taken for a bit of a ride by the supporting industries?

The stats paint a curious picture: Farmers' costs did go up in tandem with the price of macadamias. But, could it be that as our profits grew, so did the cost of our essentials? Some may speculate that suppliers, sniffing out our success, decided to bump up their prices…

But wait! There is so much more to this. Let’s take a look.

Here are some key areas we're going to explore:

• Machinery Suppliers: Are we getting a fair deal or is there more than meets the eye?

• Input Costs: How do these compare with other industries?

• Nursery Tree Prices: A fluctuating market - what's the real impact?

• Contractors Rates: Justified expenses or inflated numbers?

• Macadamia Farm Prices: Evaluating the real worth of our green gold mines.

• And a whole lot more!

🚜 Machinery Suppliers:

Crucial to every farm, we explored whether these essential tools come with an unfair price tag for macadamia farmers. Our research across various regions revealed a pretty consistent trend: while prices are high, they're not uniquely inflated for our industry.

Now, when it comes to parts and servicing, absolutely some places are better than others. Look, there are people you need to avoid, and there are people you can do business with who don't take a chance at ripping you off every time you walk through their door. Local word of mouth is key for that!

And yes, there's certainly some oligopoly play going on with certain companies, especially noticeable during COVID times. The prices shot up, availability plummeted – a scene all too familiar in the automotive world.

So as far as the machinery suppliers are concerned, we think it’s fair game and pretty standard across industries. Expensive, yes, but unfairly so? Not quite. It’s just part of the expense of Macadamia farming, but not the whole picture.

💰 Input Costs:

We’re all aware by now of the impact the Ukraine war and subsequent Russian sanctions has had on the cost of fertilisers. This global uproar led to a doubling of prices, a jolt that rippled across various industries, not just ours. In this context, macadamia farming, while facing its own set of challenges, isn't alone in this struggle. The hike in input costs came at a time when macadamia prices were, unfortunately, on a downward trend. This mix of rising costs and falling revenue presents a tough scenario for the industry, making it very difficult to absorb.

So, while the pressure of these costs is undeniable, it doesn't necessarily mean that macadamia farming is disproportionately overpriced compared to other sectors.

🌱 Nursery Tree Prices:

Next up, what about nursery costs? The costs of trees.

It's true that when the demand for Macadamia trees soared, prices followed suit. However, the increase wasn't drastic per tree. Importantly, when we compare the cost of young, hand-grafted Macadamia trees to those in retail nurseries or even seed grown indigenous tree varieties, we find the former to be surprisingly affordable.

With more farmers pausing their planting plans, we're seeing an excess in tree supply, leading to a welcome reduction in prices. This trend helps us conclude that, at least in terms of tree costs, overpricing isn't a major concern in our industry.

🔨 Contractors Rates:

Now, what about the contractors?

Recall the last time you had a contractor on your farm? Yes, the bill might have seemed hefty at first glance. But let's consider what's behind that cost. They're bringing their own:

• Machines

• Staff

• Tools

• Equipment

• …and, and, and.

Also, not to mention the rising diesel prices, which have doubled in the last four years. Transportation to and from the farm adds to the expense, along with the inevitable wear and tear on their machinery.

Think about those times they've had to stop in the field and make quick repairs on the fly. These are sometimes complex fixes that many of us wouldn't tackle ourselves. And if they need extra professional help? That's all on them! So, paying a flat hourly rate for their services might actually be quite reasonable, especially if you aren't one to handle machinery, the repairs and everything else that comes with it, yourself.

So, while we're not saying contractors are offering us a steal, their rates do seem to be fair for the services they provide. It's all part of the give-and-take in our industry, and we feel it's only right not to label these costs as excessively high.

🌳 Macadamia Farm Prices:

Assessing the true value of a macadamia farm is perhaps our most complex challenge.

Let's break it down.

When we think investment, we consider the costs:

• Financing

• Property value

• Operational expenses

And then we weigh them against the potential returns.

For instance, if investing 10 million rand yields a 1 million rand return annually from the nuts, that's a solid 10% return. In such a case, it's hard to argue that the farm is overpriced as an investment.

But many people don’t buy farms purely as an investment; they buy it for the lifestyle change—a desire for stunning views, a connection with nature, or being close to the ocean. In these cases, the value of the farm isn't just about how many nuts it produces. It's about the life it offers. The macs become a secondary concern.

But here's the twist: the fluctuating macadamia prices.

How the Macadamia price tracks is going to be one of the biggest questions that you have to deal with when looking at whether a Macadamia farm is overpriced or not. Macadamia farms don't produce a fixed amount of crop either. They can be somewhat unpredictable, much like the weather, making farming a bit of a gamble.

So, when looking at whether a farm is overpriced, you might want to look at:

• Yield over time and also

• Revenue over time 

Because the Macadamia price goes up and down.

While some farms may indeed be overpriced, often it's about striking the right deal. Remember, in the world of farming, the variables are many, and the outcomes uncertain. A farm that seems overpriced today might turn out to be a goldmine tomorrow. And looking ahead to 2050, with a projected global population of 10 billion, those being food producers of any kind, you’ll most likely be sitting in the front row seats to success, provided, of course, the climate remains conducive to our farming requirements.

So, by this point, we've reached a conclusion that machinery costs, input costs, contractor costs, etc are pretty standard for farming in South Africa. It doesn't seem fair to label the Macadamia industry as overpriced on its own.

It could be argued that farming, in general, might be costly, but this isn't a challenge exclusive to Macadamia farming.

We're all feeling the pinch from rising costs in fertiliser, diesel, and machinery, a reality shared by farmers globally, not just in South Africa. These are tough times, especially when Macadamia prices aren't high enough to cushion these increases.

But let's circle back to a previous point: when Macadamia prices were climbing, so were our costs.

Did that mean suppliers were digging deeper into our pockets, knowing we had more to spend? Or was it more about the farmers, investing more into their operations to boost outputs?

Sure, there were times, particularly during the boom, when some suppliers might have taken advantage and jumped on the bandwagon. This was a classic case of supply and demand at play. However, on the whole, it seems that the farmers were the ones investing more into their farms, trying to maximise their potential during these prosperous times.

Now, all things above may seem quite ‘obvious’ or ‘surface level’, if you will, so let’s take it a step deeper:

• Profitability is cyclical – downturns are inevitable and necessary. At certain points in the cycle, it NEEDS to be overpriced to farm macs – this weeds out the all the less efficient, unsustainable farmers so that the industry can enter a fresh upturn and return to profitability.

  It’s simple: when demand exceeds supply, prices shoot up, everyone notices – everyone jumps in. When supply exceeds demand, prices drop – everyone bails. And the cycle starts again.

• The smell of money attracts rats (this is linked to the cycle mentioned above) – macs have had a strong scent recently.

  When an industry is doing well; it’ll inspire opportunists to create 'miracle solutions' that will secure them a piece of the action. Clever marketing is designed to make people in the industry think they cannot manage without the latest snake oil. Average farmers will fall for this marketing and, for him, it might not be sustainable.

• Prosperity breeds complacency – have mac farmers gotten lazy?

  When your profit margins are healthy; it’s easy to take your eye off the ball, ride the wave and lose focus on the ‘golden goose’. (Holidays, new farm purchases, handing over to managers, generally living it up). Costs do go up but it’s because farmers have allowed them to.

• Humans are short-sighted – we tend to live in the present (must be all those beautifully written Instagram quotes 😆). This is dangerous in two ways:

  • When the coffers are full we stop looking for opportunities to improve for the future.

  • We don’t consider the future consequences of our practices (poisoning everything and depleting natural resources).

So, the verdict?

In our view, ‘overpriced’ is too subjective a term to slap on an industry. The costs are relative. Relative to the situation, relative to the market, relative to the expectations. But there’s no denying that there’s a way to farm macadamias expensively and there’s a way to farm them profitably and a hundred different factors make the difference.

💌 We Want to Hear From You! 💌

What's your take on the cost dynamics of macadamia farming? We're curious to know! Agree with our take, or do you see things differently?

Jump into the comments and let us in on your thoughts and stories.

Or, if you'd rather chat one-on-one, shoot us an email at:

• 📧 [email protected] 

• 🔁 or click reply to this email.

We can't wait to hear from you!

👉 Keen to dive deeper? Discover more invaluable insights and strategies in our series of JAFF articles. Visit → www.tropicalbytes.co.za

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