Farmers need payment reprieve too, Agbiz urges banks
The Agricultural Business Chamber (Agbiz) has urged banks to extend the measures they have taken to support small and medium-sized enterprises (SMEs) to farmers, considering the crucial role they play in the local economy.
As the coronavirus continues to wreak economic havoc across the globe, banks in SA have been urged to consider extending payment holidays to the farming sector as it fights to ensure food security. At the weekend, Standard Bank announced a 90-day loan repayment holiday for SMEs as part of measures to stem the Covid-19 economic fallout.
The coronavirus has left the global economy reeling and stocks plummeting amid fears of a jobs bloodbath. The pandemic has also led to a decline in Asia’s agriculture demand and falling agricultural commodity prices. SA’s agriculture is export-orientated, with exports of roughly $10bn in 2019. China, with 8% of global agricultural imports, is the second-biggest importer in the world.
Wandile Sihlobo, head of agribusiness research at Agbiz, said that SA’s farming sector was heavily in debt.
Agbiz is an influential association of agribusinesses operating in SA and Southern Africa. Among other strategic goals, it aims to influence the policy and legislative environment insofar as it affects agribusiness.
As of 2018, total farm debt was at a record R168bn. About 60% of the debt was with commercial banks, 29% with the Land Bank and the rest spread among agricultural co-operatives, person-to-person loans and other institutions.
Sihlobo said the escalation of debt, particularly in more recent years, was both because of expansion of the area farmed, specifically in horticulture, and to some extent because of financial pressure brought by frequent drought which has limited agricultural output on various farms.
“The financial impact of Covid-19 will vary across agricultural subsectors, depending on the debt overhang from the previous seasons and also the stage of production,” Sihlobo said.
“For example, the deciduous fruit and table grapes exports might not be badly hit as most exports have already been processed by this time of the year. Meanwhile, in the case of citrus, the harvest and exports have recently started. While so far there haven’t been glitches, a lot depends on the measures the European countries place in terms of commerce amid Covid-19 intensification in that region. From a local market perspective, as long as food retailers are operating, there should be a flow of products to market.”
Sihlobo highlighted that some farming subsectors would be badly affected by the pandemic. “Some agricultural industries’ performance is interlinked to some sectors which are hard hit by Covid-19. A case in point is the wine industry, whose performance is somewhat influenced by tourism. The decline in tourism will hurt this sector.
“The ... pandemic comes at a time when wine grapes production had started to recover following seasons of drought. This essentially means the SA wine industry could be hampered by both the potential decline in demand locally and the global market, specifically in Europe, which is now the epicentre of the Covid-19 pandemic.”
Sihlobo said overall, while lower agricultural commodity prices are favourable for consumers, the opposite is true for farmers.
“Under such a scenario, the question is whether farmers will be able to have sufficient revenue to service their debts. Admittedly, there are still a lot of unknowns about how the Covid-19 pandemic will play out and the various levels of indebtedness among farmers, but a proactive policy response could help prevent financial ruin for farmers, particularly those of a small to medium-sized scale.”