26 September 2023
By: Liana Mocke
Producer debt has been increasing more slowly since Covid-19, with good harvests and prices helping to flatten the growth in agricultural debt. But uncertain economic times could quickly change that.
“Given the good seasons behind us, farmers have consolidated their debt, taken on less debt and repaid a significant amount of debt,” says Dawie Maree, head of information and marketing at FNB Agriculture.
According to him, the future of agricultural debt depends on how the current season unfolds and the impact of El Niño on producers.
The Banking Association of South Africa’s June figures on agricultural debt of primary producers at the four largest commercial banks – Absa, Nedbank, Standard Bank and FirstRand – show total debt of just under R163 billion. This was R147.27 billion at the end of June 2022 and R150.44 billion at the end of December. Primary agricultural debt refers to the debt of all farmers and producers of agricultural commodities, including dairy farmers, pig farmers and producers of braai chickens.
The headlines: climate, fuel, load-shedding and logistics
Load-shedding, fuel prices, the performance of the rand and the logistics infrastructure crisis are putting pressure on the economic environment and producers.
According to Casey Delport, investment manager at Anchor Capital, load-shedding continues to hamper the economy. Prices for exported commodities will also continue to weaken, she says.
“In the short term, stronger El Niño conditions threaten agricultural prospects, while global climate events pose additional risks. Energy and logistical constraints continue to significantly impact South Africa’s economic growth prospects as they limit economic activities and drive up costs.”
Fuel prices rose by 2.2% in July and August, and the increase in diesel prices is not yet over. The latest information from the Central Energy Fund suggests a possible increase of almost R2/litre in October, depending on the grade. The price of Brent crude oil has risen by more than 30% since March, when it was around $72 per barrel. It is now trading in the range of $93, and there are fears it could rise to $100.
Lesetja Kganyago, governor of the Reserve Bank, said on Thursday with the announcement of the unchanged prime interest rate of 8.25% that an improvement in the logistics environment and a sustained reduction in load-shedding or greater energy supply from alternative sources would significantly boost economic growth.
“In the absence of sustained increases in energy supply, electricity prices will continue to pose significant inflation risks,” Kganyago said. “Load-shedding and logistical constraints can also have a broader impact on the cost of doing business and the cost of living for people.”
Future interest rate movements
Responding to a question about when interest rates will start to decline, Kganyago said: “One swallow does not make a summer; on the contrary, there must be many more swallows before it can become a summer.”
Delport also warned that the renewed risks posed by the weakening rand, with higher global fuel and food prices, could mean the possibility of a modest increase in the interest rate when the last monetary policy committee meeting of the year is held in November.
