Record harvests this season will not be able to stymie the country’s growing agricultural farm debt challenges.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said this was despite the country having seen a large agricultural output, coupled with higher commodity prices, which were precipitated by the weaker rand, and growing global demand that improved farmers’ finances somewhat.
“The benefits of this improvement were also observed through robust agricultural machinery sales, with tractor sales for the first nine months of this year up slightly from the corresponding period in 2019. Yet the challenge of growing in the sector persists, as it will not be solved by one good harvest like the one we recently recorded, which was preceded by years of poor output in various provinces of the country,” said Sihlobo.
According to last year’s data from the Department of Agriculture, Land Reform and Rural Development, South Africa’s agricultural debt was at a record R187 billion, nearly a three-fold increase since 2010.
Agbiz said about 29 percent of this farm debt was held by the Land Bank and 61 percent by commercial banks with the balance spread among agricultural co-operatives, private persons and institutions.
The recent escalation of debt was attributed to the expansion of the area farmed, specifically in horticulture, and to some extent, the financial pressure brought about by frequent droughts, which had limited agricultural output.
Agbiz said although the levels of farm debt as a percentage of the agricultural gross value added were not as high as those seen before 1994, there were still growing concerns among various farmers that access to credit in the 2020/21 production season could prove to be a challenge.
Sihlobo said this was the case, despite the large harvest of the 2019/20 season.
The liquidity constraints facing the Land Bank, coupled with the general uncertainty brought about by Covid-19, had made financial institutions more risk-averse.
“There is anecdotal evidence from various farmer organisations and agribusinesses that previously worked closely with the Land Bank on providing finance to the sector who are now worried about the 2020/21 season.
“Land Bank’s involvement in South Africa’s agricultural sector is through various direct and indirect financial services dedicated to supporting both on- and off-farm agricultural activities and businesses, including input provision, land purchase, production, distribution, wholesale, processing and marketing,” he said.
Sihlobo said spillovers of the current liquidity challenge were particularly important, as the planting season began this month and farmers needed to acquire production inputs and implements.
While the scale of the problem on the farming sector was still unclear at this point about the upcoming season, the growing concerns from various interactions have introduced additional risks to the 2020/21 production season, he said.
Access to production finance in the sector was increasingly becoming a concern for farmers.
“The solution to this will begin by first addressing the liquidity challenges at the Land Bank, a responsibility which largely falls on the hands of the government, primarily the National Treasury and the Department of Agriculture, Land Reform and Rural Development, as the Bank’s Act mandates,” he said.
Southern African Agri Initiative chairperson Dr Theo de Jager said farmers were in dire straits. He said that a large portion of farmers depended on the Land Bank whose whole book was on farmers and took land as collateral.
He said many farmers were not coping under the current circumstances.
De Jager said the sector needed some form of a financial bridge that would aid its recovery.
“We need a patient and sympathetic capital that will provide loans over a longer time with softer (than normal) interest rates. Farmers are not asking for handouts but assistance so that they can farm their way out of these dire straits,” he said.