Episode 9: In conversation with Gerhard Kriel

4 Mar

To mark the occasion of our first international partner launch outside of the UK, Florian Ritzmann and Gerhard Kriel talk about the politics and economics of farming in South Africa, the potential for digital disruption and (of course) Rugby.

Contributors in this episode

Florian Ritzmann:

Farming and South Africa go together. We all enjoy South African wine, citrus fruits, berries, apples, avocados to name just a few products that South Africa is famous for. And on this show, we want to mark the occasion of launching our first South African partnership and learn a little bit more about South Africa as a proud farming nation. So today on the show, we are importing Gerhard Kriel, a man who lives for two things, maybe one more than the other: farming and rugby. Or maybe just rugby. So let's start with farming. And hand the mic over to Gerhard. Welcome Gerhard. Where are you today?

Gerhard Kriel:

Hello Florian. In the sunny summer of South Africa, right in the centre of the country in a city called Bloemfontain. And this is the base where I'm working from. So yeah, very nice.

Florian Ritzmann

Can't say the same here. It's grey and rainy. But that's the UK for you in general. So Bloemfontain and agriculture. What I know is that Bloemfontain is referred to as a sort of South African breadbasket, but correct me if I'm wrong, but what is it that is grown in your area?

Gerhard Kriel:

Well Florian wheat, based in the provinces, called the Free State, it used to be called the Orange Free State, which is right in the centre of the country, and it's the shape of a kidney. And many people say it's actually for kidney beans, but there's not so many beans being produced here anymore. So mainly, there's some cattle farming or quite some large cattle farming taking place. But it's mainly, you know, the central the northern eastern part of the Free State is mainly grain country where maize or corn as it's known, abroad, is being produced and what we call in South Africa, we call it Millis. And there's also a little bit of wheat left, used to be a huge wheat production area, but that was mainly moved down to the Western Cape area, which is mainly the grain areas now. So based on the fact that all the grains or a lot of the grains are produced, volume wise, the majority is produced in this area. That's why the Free State is called the grain basket of South Africa.

Florian Ritzmann:

Alright, so what's your connection to farming? You come from a farming family?

Gerhard Kriel:

No, I wish. <y father used to say, you know, he's gonna buy a farm one day, which never happened. I got a bursary from the dairy Institute in South Africa and I studied agriculture here in Bloemfontein at the Free State University. I specialized in dairy science, the subject was food technology, microbiology, biochemistry and genetics. So I've got a pretty good background, from the science part of agriculture. I always say one day when I grow up, I want to be a farmer. But that has never happened. And, you know, it just turned out that my career basically started off in agriculture. And I've been involved in it for close to 35 years now, where I was involved in, in grain trading, grain production, wine trading, I used to be the MD of a wine company that exports mainly to the UK. I visited the UK on a wine trip quite some time ago. I've been in pharmaceuticals, but mainly most of the time I was in the agribusiness. You know where we would be supplying agri inputs and everything from A to Z, from nuts and bolts to combine harvesters tractors, the whole lot. I used to run that part of businesses for some of the largest coops; we used to call them coops here in South Africa. I think it might be familiar term with your listeners. But the coops mainly have changed over, you know, pre 1994. When there was a government change in South Africa, they all became businesses or companies. So there are a few left over there are still coops and work on the principle of coops. But as a legal entity, most of the larger ones are companies, although they are all owned by farmers. So the principle is basically the farmer is the owner and the customer and you have that circle and that circle if it's not watched accurately, you know, that can turn into a costly exercise.

Florian Ritzmann:

That’s interesting. I'll probably get back to cooperatives particularly within the context of the challenges that South African farmers might face later on in the conversation. But one thing that I thought was really interesting about you, you run a few organizations, enterprises and one of them is called Friends of Agriculture, which really caught my interest. Why did you set that up? And what is that all about?

Gerhard Kriel:

Florian, a few years ago, I was the CEO of the Free State Agriculture union, which is the farmers union in South Africa. So every province has a farmers union. So this one was at that time, the largest, we had about three 3.500 farmers being members. At the time, there was a huge challenge, and not that it is now less or more, it's still a huge challenge for farm safety in South Africa, that you probably heard of. And, you know, the sad thing is that the South African government does not give the recognition to this issue that it should. But I think that is probably the largest challenge. And at the time, when I was the CEO, I realized that you know, John Doe in the street, they don't know what the, what's actually happening in food production on the farming side of things. I decided to form a marketing arm for Free State agriculture, called Friends of Agriculture. And the idea was to use that as a vehicle to inform people of what is happening on farms in terms of farm safety, in terms of challenges like droughts and fires every year. In our area, just as an example, every year round about August, which is the windy month, you know, we have anything 800 to 1000 Hector's burning, the fires destroy everything that comes in its path. So, with all those challenges there, I realized that consumers don't understand what is actually happening, they just go to the retail store and buy the products. And they moan when it gets more expensive. So the purpose of Friends of Agriculture is to inform the greater public there and everybody can become a Friend, whether it's a company or an individual. And they can become a part of the movement. And, you know, their contributions that we that we ask is, firstly, expertise. Secondly is time available. And thirdly, financial support. And we use that support that we get to get this vehicle going and make people more aware about firstly, that agriculture is very important, because everybody who is privileged enough to have a meal a day, they are dependent on agriculture, that's where the food comes from. And secondly, to get people involved in the value chain to realize that this is a value chain that needs to be managed. And you know, people have been in agriculture, as I said, for over 30 years, and for 30 years, people have been talking about the same issue. And I believe now, when we get the man in the street involved, we can actually manage the value chain, because as you know, the farmer is a price taker he needs to take the price that he gets offered, it goes up and down during a season. But in the retail store, the prices don't go up and up. So somewhere somebody is making a big buck out of let's not say misery, but this is the situation that the farmer is in. And we need to make people aware of that. And that's the purpose of Friends of Agriculture. And we've been pretty successful in in getting people informed.

Florian Ritzmann:

It sounds very much like a lot of what you said there resonates with previous conversations, previous podcasts, farmers saying that consumers are completely unaware as to what it actually takes to produce the food and then obviously, that is is often almost an act of economic hardship to produce it. And so that's, unfortunately, the same problem over here to a greater or lesser degree or probably all over the world. So thanks for that. I think that's a good segway really to he wider issues that that farmers in South Africa might face. I mean, you've touched on safety, security and fires but economically, how is the South African farmers positioned if you can summarize that? What are the economic difficulties that South African farmers face these days? Is agriculture in good shape and everything is fine? Or do we have the same margin issues? I mean, you touched on it with your comment on price taking and margin seemingly disappearing somewhere else. So I'd like for you to explain.

Gerhard Kriel:

Now the I thing that is very interesting about South African farming is that there are no subsidies, which is very much different from the United States and from Europe. It's a free market system that opened up post 1994. And it's first come, first serve best price makes the deal and that's how business has been done in agriculture. And I must say that agriculture is you know, from the commercial farming side, we've got about 25,000 commercial farmers in South Africa. That's really wealth creation. You know, just as an indication, John Deere announced recently that they had the highest sales in history in South Africa. So from that perspective, the farmers are well educated, they're well experienced, they know how to farm and produce food. So the challenges that they have is, firstly, you know, there's a, there's a major political challenge that they need to face, you know, recently, there was a huge issue in the newspapers that, for instance, white farmers cannot export to the UK, they will not be, they will not be able to, to get a license to export unless they have a black partner, which means that 25.1% of their business needs to be owned by a black South African. So there's, there's still a lot of talk going on. Some people say it's, it is the case, other people say it's not, but we know, our politics is, you know, as they say, where there is smoke there is fire, so this might be pushed into a direction. So those are some kind of the challenges that our farmers face from a financial point of view, you know, the cost of capital is high in South Africa, you know, we've got interest rates are ranging in the order of, let's say, 9, 10, 11%. Now in South Africa, where, when I was in Europe, I saw an advertisement for a car, and it indicated it was 1.5% interest, and I thought good, this is, I should go to Europe, I must come come do business here. But then again, it's also about your return on investment, you know, there's a, there's a lot of opportunity here, there's great return on investment. So the farmers have got, you know, mainly it's the financial challenge and the political challenge that we continuously have to manage. Because, you know, farming in the free market system is a capitalist system. And there's a big drive from the government side to be, you know, a communist-socialist type of system. And somewhere in between, you know, farmers have to find a sweet spot where they can produce within the framework of this climate. And, you know, and sort of make ends meet at the end of the day, but I must say they, they've, the commercial farmers are under pressure. But there are many very large, very successful farmers. Just thinking of some somebody I noticed has 43 Farms, so there are some, what we call the South African mega farmers. So they're quite a few of them in South Africa. And then there's the other part, the upcoming farmers, well, mainly black farmers, that, you know, are developing. But typical of Africa, most black farmers are farming on one hectare, which is sort of just providing for the family. But those are two worlds that through Friends of Agriculture, we were also trying to bring together, all the commercial farmers side, there are many guys who are willing to act as mentors to help and support the upcoming farmers side. And the last number I heard there was about 250,000 upcoming farmers. And so we tried to get that connect there, you know, steering clear from politics, because there are quite a few of these guys have been forming as a get rich quick scheme in South Africa. And they know that they need to be politically connected, to get access to finance. So although the government is trying to and there was a big issue about four or five years ago of taking land without compensation by the government, that is still on the table, and it's still a political hot potato. But the government does not intend to give the ownership of the land to the upcoming farmer, which means how the financial system in South Africa works you need to have, you need to have that security when applying for a loan. So like any commercial farmer, whatever loan they take, they put the land up a security and they get the credit line from the bank or from the coop. And that's how they fund themselves. So yeah, so those are the main challenges basically, politically is the safety thing that I touched on earlier, is a huge, huge issue. You know, I haven't looked at it over the last month, but they're regularly about, you know, four or five farm attacks per month, which is a major problem. And that is not just on commercial farmers. That's right across the board, because there are softer targets. Some people say it's pure crime, other people say petty crime, other people say it's organized crime, and then you know that there's been a lot of talk in evidence that is this is an organized political operation against the commercial farmers in South Africa. But having said that, you know, somewhere in between all these challenges that farmers need to make things work, get the business of growing done, and make sure that whatever they they do that they do it on what are the best practices and, you know, make ends meet at the end of the day.

Florian Ritzmann:

That's certainly one parallel that I have noticed that farmers are extremely innovative when it comes to adapting, whether that's to politics, whether that's economics, whether that's to climate change, with the resources that they've got, but certainly from what you're saying, if I dare to summarize what you said, it's like, South African farming really is in the thick of politics. Much more so than then would be over here. I think all over the world politics and farming clash. There are conflicting interests all over. In South Africa though It is like resolving that as a legacy of South African history. And so that's a real challenge that, perhaps over here, we don't have that as a problem to consider. But let's go back to the future and the reason for what brings you on this call. And you already kind of touched on a few of the things that you'll probably talk about again. So we first started talking about a year ago. And I'm curious for our listeners to hear, so what prompted you to contact us. I know what we do, and some of our listeners know what we do. I mean, we tried to help solve the economic problems that farmers are facing. So what prompted you to contact us and consider setting up your own buying group on our platform?

Gerhard Kriel:

You know, years ago, when I was still with a coop, I met up with a with a buying group. And I asked them: Why did you form a buying group? The simple answer was they they perceived to to see inefficiencies in what the coop was doing, you know, and I could being on the coop side, I could correct that and give the farmer the value they wanted, but that somehow somewhere over the 30 years, the step up to technology, the step up to putting the client first, you know, getting business processes running smoothly to serve the farmer. And obviously, your shareholder in this case of the former is a shareholder. So to get a higher return on investment means he has to pay more for his diesel. And the other way around to get his input cost as low as possible means that the return on investment or the sheer value that he owns, is going to drop at the end of the day. I saw that there was still opportunities and actually quite a lot of opportunities in South Africa, especially because there are a few mergers taking place at the time, currently between the larger coops or the agri businesses. And I must say, you know, 20 years ago, in 2001, I made a prediction, and I said they're probably going to end up four or five big coops in South Africa in 20 years time. And we are very close to that now, especially in the northern parts of the country, in the Southern and Southeastern parts of the country, there are still a few smaller ones. But I think we are moving in that direction. And with these mergers taking place means that you're just getting bigger, and not necessarily better. The grip or the hold that the agri businesses have on the farmers is, is not actually the cost of doing business, you know, keeping that as low as possible or bringing in an investment as the owner of the share, but actually the benefit that the coop has is that they supply the money, they supply the loans to the financing for the operations. And I must say 95% of farmers that I know, wish they were not caught in that cycle, they would like to buy from wherever they want at what, when they make the decision and at the lowest possible cost on the inputs. And they can invest in money, whatever profit they make of the primary operation, which is the farming and then look at their secondary operations which are their investments and balance the two off and maybe going investors shares in some other blue chip company where they were they would like. So you have these mega farmers who basically can can do a lot of that. But I think the majority 80% of the farmers, the medium sized farmer are in that cycle, and they wish they could get out of it. And that creates an opportunity for a solution that can actually give you the lowest cost of doing business and then giving you the opportunity to pick your markets and go and because it's a free market. You can go and sell your products wherever you want and there are many successful companies in South Africa, you know, also companies that started up in the last four or five years, where farmers can dispose of the produce, that's fresh produce, grains, everything where it used to be delivered, you know, into the coop structure into the silos can take grains. And they can, you know, trade grain from that perspective, but it's it's costly it is actually, when you do the calculation, and not many farmers have done that calculation, it's a very expensive cycle. And I believe that a platform or digitized Coop, which works the way they were supposed to work, where you have the buying power of all the farmers together, where there's transparency in terms of what they need, not for everybody, but for the farmer, and the farmer and supplier, that is, transparency of what volumes they need, you can pull all of that together, and you have an efficient buying process, which is also a challenge within the agri businesses. Because there's a system and everybody sort of sticking to that system. You need to, you know, mold that system to suit your customer at the end of the day and do it better. And that is where this platform can can give a solution. And I did some research. And it was really a hard search, because at that time, you actually can't remember how I got a hold of you. But when I found out, I thought these guys have got what I have in mind. And instead of reinventing the wheel, I made contact with you guys. And then since then there's been a lot of work being done, and developments. But I think it's now. The time is now. Everything is up and running. And we can start and we can we can try and and share that. Let's give to that clever IP back to the farmer in South Africa and see if we can get them out of that cycle.

Florian Ritzmann:

Now to draw parallels, again to Europe, and also North America, I think you're quite right. Bigger is not better. This is what I hear from farmers as well, I think you've probably quite right, you know, 95% of British farmers who are a member of the buying group would probably say that they don't think they're buying group or Coop is doing exactly what they want them to. I certainly heard that from farmers in Nebraska as well. And it's their control of the money that really keeps the farmer, you know, with them. And I've heard many examples of farmers saying that, you know, we know we can buy the stuff cheaper, but you know, we don't have the cash flow to pay for it on the spot. And so therefore, we want to take delivery after we sold the harvest, and that's in six months. So we're gonna pay whatever price and it's really I think it's the, I think breaking that dependency on credit and kind of almost modularizing - here's the product as the finance, and you've got choice in both - is the solution for agriculture in general to create more margin really, for farmers, which ultimately being the risk takers in the agricultural economy, that's where it should be. Not left to the left, and to the right of the farm gate. It should be right, right inside the farm.

Gerhard Kriel:

And I must say, I think the mindset that needs to be to happen is that the farmer, they know that they are the biggest risk takers in this whole value chain. And this, there will have to be a mind shift for them to realize that risk is lying sooner, or to the front of the value chain, rather than the end of the value chain, and that they need to manage that and then adopt and be early adopters of technology like this platform.

Florian Ritzmann:

We violently agree. I think in many ways, what you're describing seems to be a more well, - extreme - perhaps this is the wrong word. But it's the only one I can think of right now, version of what's going on all over the world. I mean, you've got certainly a political dimension in South Africa that perhaps we don't see over here in Europe, but the basic economics are the same. And the problems are therefore the same. That should resonate with any listener anywhere in the EU, anywhere in the world. But look - the most important thing, of course, is to talk about rugby. So I mean one of the things that you know towards the end of this conversation I wanted to make sure to put this in because it is part of your DNA. So it seems is rugby so first of all congratulations South Africa, winning the world cup well deserved not that I know anything about rugby, but I even watched some of the matches. But bringing it back to farming is rugby actually so big with you because it is part of farming culture in South Africa?

Gerhard Kriel:

With directly being so a big part of our DNA of I do my sons are professional rugby players, one of them is currently in the UK touring there. So just to mention as a proud father I can say that one plays for the Bulls franchise and the other and Richard plays for the Lions franchise and both teams are doing fairly well in the URC competition at this time, but I must add that you know, the high school that they were in here in Bloemfontein is called the Rigby factory of South Africa. A great college which is well known and it is from where many Springboks coming from. It's always been a strong Rugby School but the rugby players at school level were mainly from hostel boys who stayed in the residence on the school premises and they were former boys. So if you go back into into the history of Springbok rugby players, there were quite a lot of farmers there. And you know, the joke was always there because they had to, you know, work hard on the farm that produced all those well built, well structured big boys. And it's known indirectly well, that sort of African breeds very large rugby players. You know, even my, if I take my sons, you know, I'm 1.96 meters tall, and I played Number Eight. And now my sons are almost as tall as I am. One is 1.96 out of one, it's just a little bit shorter, and they playing in the backline. So things have changed, but I think the pedigree and the breeding of big, big guys in South Africa goes hand in hand with with farming, you know, and then I think genetically it's been like that, that farmers have always been the stronger kind of guy.

Florian Ritzmann:

It's interesting use of the word breeding, which is a farming term to literally, okay, well, so we've established firmly that farming and rugby are related. So I think that's a great way to end this conversation. Gerhard, it's been a real pleasure to have you on this call. It's been a real pleasure to be setting up Agretail, which is launching in February this year 2024 on FutureFarm and have you on this call. We look forward to really doing our bit with you to you know, helping out farmers in South Africa and worldwide. And yeah, I think it's a great story. And it's going to be an interesting year. Let's put it that way. Thank you.

Gerhard Kriel:

Thank you very much. It was a privilege talking to you. And thank you for having me on your talk. And yeah, I'm just as excited. And I believe that we can make a real impact in the market.