▶ Buyer Guide · Africa Estate Agricultural
What a Farm Costs to Run
And what it costs to get the crop to market, which is the half nobody advertises.
A farm is bought on its price per hectare and lived on its cost per hectare. Only one of those two numbers is in the advertisement. The other one decides whether the place pays you, and it is built from diesel, electricity, fertiliser, seed, repairs, labour, insurance and finance, set against the hectares that actually produce rather than the hectares on the title deed. Then there is the road: transport is charged on the ton and the kilometre, so the distance to the silo or the abattoir comes off the value of every season for as long as the farm is farmed. This guide sets out the lines to look at, how to price the route yourself, how to test what a pivot really delivers, and the records to put into the offer.
▣ Key Facts at a Glance
- A farm is bought on price per hectare and lived on cost per hectare. Only the first number appears in the advertisement, and only the second one determines whether the farm pays its owner.
- Cost is measured against the hectares ACTUALLY worked, not the hectares on the title deed. Veld that cannot be ploughed does not belong in a production costing.
- Transport is charged on the ton and the kilometre, so distance to the silo, abattoir or processor is a permanent deduction from everything the farm produces, every season.
- A pivot delivers what its registered water authorisation, its electricity supply and its mechanical condition allow, which can be materially less than the hectares it covers.
- Three consecutive production years, with yields and hectares planted beside the figures, are the minimum evidence. Farming income and expenditure is returned to SARS under the First Schedule to the Income Tax Act 58 of 1962, so the underlying records exist.
- Diesel and electricity are the two lines that test whether the story matches the farm: diesel tracks hectares worked, electricity tracks pumping hours.
- Implements are a future cost as much as a present asset. What must be replaced in the first three years lands in the same account as the bond instalment.
- This page carries no rand figures on purpose. Costs differ enormously between an Orange River pivot and dryland on the Ghaap Plateau, and a national average would mislead on both.
The Three Numbers That Decide It
Soil and water get the attention, and they matter. These three decide whether the farm pays.
Cost Per Hectare Worked
A farm is bought on price per hectare and lived on cost per hectare. Only one of those two numbers appears in the advertisement.
Price per hectare compares farms. Cost per hectare tells you whether this one will pay you. The second number is built from the diesel, the electricity, the fertiliser and chemicals, the seed, the repairs, the labour, the licences and insurance, and the finance, measured against the hectares actually worked rather than the hectares on the title deed. A farm carrying four hundred hectares of veld it cannot plough is not a four hundred hectare production unit. Work the cost against what produces, and the picture changes on most farms.
The Route to Market
Distance, road condition, load size and who carries the cost. It comes off the price of every ton, every season, forever.
Two farms with the same soil and the same water are not worth the same money if one is forty kilometres from the silo on tar and the other is forty kilometres on a district road that cuts up after rain. Transport is charged on the ton and on the kilometre, and a road that will not take a full load in February costs twice: once in the rate and again in the waiting. Ask where the crop goes, who carries it, at what rate, on what road, and what happens to that road in the wet season. The answer belongs in the valuation, not in the surprise after transfer.
What the Infrastructure Actually Delivers
A pivot is sold on the hectares it covers. It should be bought on the hours it can run and the water it is entitled to.
A centre pivot covering sixty hectares is not sixty hectares under irrigation unless the water, the power and the machine can all carry it through a dry January. The registered water authorisation sets the ceiling, the electricity supply and tariff set the hours, and the age and condition of the machine and the pump set what actually reaches the land. The same reasoning runs through the whole werf: sheds, handling facilities, fencing and boreholes are each worth what they can still do, not what they cost to build.
The Eight-Step Process
1. Ask for three full production years, not the best one
One good season proves nothing and one bad season condemns nothing. Ask for three consecutive years of income and expenditure, with the yields and the hectares planted beside them. A seller who farms properly has this because SARS requires it: farming income and expenditure is returned under the First Schedule to the Income Tax Act 58 of 1962, and the figures behind that return are the figures you want. A seller who cannot produce three years is telling you something about the farm before you have asked a single question about the soil.
2. Separate the farm from the family
On most family farms the bakkie, the house, the domestic wages, the school fees and sometimes an entire second business run through the same books. None of that is the cost of producing a ton of maize, and a buyer who does not strip it out will either overstate the running cost and walk away from a good farm, or understate it by treating a subsidy from another business as farm income. Go through the expenditure line by line and put each one in one of two columns. It is an afternoon's work and it changes the number more than any other single step.
3. Read the diesel and the electricity against the hectares actually worked
These two lines are the quickest test of whether the story matches the farm. Diesel tracks the hectares tilled, planted, sprayed and harvested, plus the cartage. Electricity tracks the pumping hours. If the accounts show a modest diesel spend on a farm described as fully worked, either the contractor did the work and his invoice is somewhere else, or the hectares were not worked. Both are answers you want before the offer. The municipal or Eskom account and the fuel invoices are ordinary documents and a genuine seller hands them over.
4. Price the route to market yourself
Do not accept a transport figure, work it out. Where does the crop or the livestock go: which silo, which abattoir, which processor, which market. How far, on what surface, and what does that road look like after rain. Is there a full load or is the farm paying for a half-empty truck. Is the rate per ton or per kilometre, and who carries the risk if the delivery window is missed. Then drive the road yourself, preferably in the wet season. Anyone who has run trucks will tell you the same thing: the rate on the quotation is not the cost of the route.
5. Test what the pivot really delivers
Take the registered water authorisation first: the volume on the licence, or the documented proof of existing lawful use, is the ceiling and nothing on the ground can lift it. Then the power: the supply, the tariff and what it costs to run the pump through the hours a dry month demands. Then the machine: age, gearboxes, spans, sprinklers, the pump and its last service. A pivot standing in a field is an asset in the photograph and a liability on the invoice if its water, its power or its condition cannot carry a season.
6. Read the implement fleet as a future cost, not an asset list
Implements are usually presented as value included in the price. Read them the other way: what will have to be replaced, and when. A twenty year old planter that still plants is worth having and is not worth much. Ask for the service records, the hours, and what has been rebuilt. The honest question is not what the fleet is worth today but what the farm will have to spend on it in the first three years, because that money comes out of the same account as the bond.
7. Work out what the farm must earn before it earns anything
Add the running cost, the finance instalment, the rates and the insurance, and you have the number the farm must produce every year before it pays the owner one rand. Set that against a conservative yield in an average season, not the best season in the file. If the farm only works on the best season, it does not work. This is also the number a lender will build its own view around, so a buyer who arrives having done it is a buyer the Land Bank and the commercial banks take seriously.
8. Put the records into the offer
Everything above depends on documents, so the offer must ask for them and not merely hope. Make the sale subject to the production records, the accounts, the electricity and fuel accounts and the water authorisation being provided and verified within a stated period, with a clear consequence if they are not. A seller who has farmed properly loses nothing by it. A seller who refuses has answered the question.
Where Buyers Get This Wrong
- Costing the title deed instead of the farm. Hectares that cannot be worked do not belong in a production costing, and including them flatters every figure that follows.
- Working off one season. The file always opens at the best year. Ask for three and read the yields beside the hectares planted.
- Leaving the family in the books. The house, the bakkie, the school fees and sometimes a whole second business run through the same account. Strip them out before you judge anything.
- Taking a transport figure on trust. Work the route yourself and drive it, preferably after rain. The rate on the quotation is not the cost of the road.
- Counting pivot coverage as production. The water authorisation, the power and the machine each set a ceiling below the hectares the circle covers.
- Reading the implement fleet as value received. It is a replacement schedule, and it falls due in the years when the bond is heaviest.
- Asking for the records after the offer. By then the price is agreed. Put the documents into the offer as a condition with a date on it.
Frequently Asked Questions
Why does this guide not give rand figures?
Because a diesel price, a fertiliser price or a rand per hectare is out of date within a season, and a costing page that quotes a stale number does more harm than one that quotes none. Costs also differ enormously between a pivot on the Orange River and dryland on the Ghaap Plateau, so a national average would mislead on both. What does not go out of date is the method: which lines to look at, what to compare them against, and which documents prove them. Use the method on the farm in front of you and the numbers come from that farm rather than from an article.
What documents should I ask a farm seller for?
Three consecutive years of income and expenditure with yields and hectares planted, the electricity accounts, the fuel invoices, the registered water authorisation or documented proof of existing lawful use, the implement list with service records and hours, the rates account, the insurance schedule, and any contracts that come with the farm such as offtake agreements, grazing leases or a Water User Association account. That list is ordinary. A seller who farms properly has all of it, because SARS, the bank and the auditor have asked for most of it already.
How much does the route to market really matter?
It matters every season for as long as the farm is farmed, which is why it belongs in the price rather than in the surprise afterwards. Transport is charged on the ton and the kilometre, so distance to the silo, the abattoir or the processor is a permanent deduction from the value of everything the farm produces. Road surface and wet season condition change the rate and the reliability. Two farms with identical soil and identical water are not identical businesses if one of them cannot get a full load out in February.
A pivot covers sixty hectares. Is that sixty hectares of irrigation?
Not by itself. The registered water authorisation sets the ceiling on what may lawfully be applied, the electricity supply and tariff set the hours the pump can run, and the age and condition of the machine and the pump set what actually reaches the land. Any one of those three can reduce sixty hectares of coverage to far less than sixty hectares of production in the month that matters. Check the authorisation first, because it is the one thing that cannot be fixed with money on the ground.
The seller says the farm made a certain profit. How do I test it?
Separate the farm from the family, then check the two lines that are hardest to dress up. Diesel tracks the hectares actually tilled, planted, sprayed and harvested. Electricity tracks the pumping hours. If the working costs are light for a farm described as fully worked, either a contractor did the work and his invoice sits somewhere else, or the hectares were not worked. Compare three years, not one, and read the yields beside the hectares planted rather than the income on its own.
Should the implements be part of the price?
They can be, but read them as a future cost rather than as value received. The useful question is what must be replaced and when, not what the fleet would fetch today. Ask for service records and hours, and find out what has been rebuilt and what has merely kept going. The replacement spending lands in the first years, in the same account as the bond instalment, which is exactly when a new owner has the least room.
Does a high running cost mean it is a bad farm?
No. An intensive irrigation farm has a high running cost and can be an excellent business; extensive grazing has a low running cost and can be a poor one. The number that matters is not the cost, it is what the farm must earn before it pays the owner anything, set against a conservative yield in an average season. A farm that only works in the best season does not work. A farm with a heavy cost line and a reliable margin above it does.
Who at Africa Estate should I speak to about this?
Willem van Schalkwyk, who wrote this page. He farms from Jacobsdal and works the Orange River and Vaalharts belt: Jacobsdal, Luckhoff, Fauresmith, Koffiefontein, Douglas, Hopetown, Prieska, Kimberley, Barkly West, Warrenton, Jan Kempdorp, Hartswater, Ulco, Christiana and the Ghaap Plateau. He has run lucerne under pivots, sheep and cattle, and spent thirty-five years in transport and logistics, so the conversation starts at what the land costs to work and what it costs to get the crop to market rather than at the asking price.
Disclaimer
Africa Estate is a property practitioner, not a financial adviser, an accountant or an agricultural economist. This guide explains how to read a farm's running cost and its route to market so the right questions are asked while the deal can still be shaped. It does not value any farm, does not project any income, and is not a substitute for advice from your own accountant, agricultural economist or lender on your own facts.
Sources & Regulatory References
All statutory references below are current South African legislation as at the page review date.
- Income Tax Act 58 of 1962, First Schedule. Governs how farming income and expenditure are determined and returned, which is why three years of usable records exist on a properly run farm. Administered by the South African Revenue Service (SARS).
- National Water Act 36 of 1998. Sets the lawful ceiling on water use, which is the first limit on what any irrigation infrastructure can deliver. Administered by the Department of Water and Sanitation.
- Land and Agricultural Development Bank of South Africa. The principal agricultural lender, whose assessment turns on the same production and cost records this guide asks for. landbank.co.za.
- Property Practitioners Act 22 of 2019. Governs property practitioners, mandates and disclosure. Administered by the Property Practitioners Regulatory Authority (PPRA).
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