The impact of changes in corn prices on pesticides demand

Abstract

Commodity prices have recently seen record grain prices with most growers generally improving their profitability. In 2007 the USA crop protection value experienced its biggest annual increase since 1984 with a US$30.5 billion increase compared to 2006. South African growers increased their gross margin even with lower historical yields, from US$480 per hectare in 2004, to an estimated US$1,133 per hectare in 2008. With the current global grain stock-touse ratios maintaining their lowest levels in 35 years, higher and more price volatility is expected to continue. Whilst growers have benefitted from these more favourable crop prices, agrochemical suppliers have battled to increase their chemical prices. In South Africa, other suppliers (seeds and fertiliser), managed to increase prices at least twofold the percentage agro-chemicals achieved from 2003 to 2008. The purpose of this research was therefore to try and understand how commodity prices influence corn growers’ pesticide demand, as well as to better understand their pesticide buying behaviour under fluctuating crop prices. A structured web-based questionnaire to collect primary data from corn growers within South Africa and Hungary was used. Besides the impact of commodity prices to business buying behaviour, the research also focused on the price elasticity of agro-chemicals, futures trading as a risk reduction mechanism and the value of agro-chemical sales representatives. From the findings the survey managed to highlight that even though commodity prices do impact agro-chemicals, it was not the biggest influencer towards agrochemical buying behaviour. The survey further indicated that similar to many other industrial goods, agro-chemicals represented fairly inelastic prices, most growers use hedging to reduce price uncertainty and the majority value the relationship with their agro-chemical representatives. The data also highlighted additional similarities that exist within the business buying behaviour of Hungarian and South African growers.