The past three weeks have been quite eventful, starting with South Africa’s successful participation in this year’s Forum on China-Africa Cooperation (FOCAC) wherein a few trade protocols were signed.
China is the world’s most populous country, economically growing and with strong demand pull and export opportunities. This was followed by another exciting news that the Land Bank has cured its default position.
The South African Reserve Bank also started a new cycle of cutting interest rates. This week, a heritage week, features South Africa’s high showing at the 79th United Nations General Assembly. Next year, South Africa will take leadership and be the host of the G20 group of countries. All these and others elevate the country’s standing in the global community and along with that trade opportunities in a “new era of opportunities”, particularly within BRICS+.
The Land Bank’s ability to come back from financial default is commendable. The Bank is essential to the South African agricultural sector, supporting both development and commercial farmers. Its contribution in the sector through developing rural agricultural economies, supporting farmers and job creation makes it irreplaceable.
It is hoped that the government has recognized the weakness of the funding model that created liability challenges in the first place. Agriculture is dependent on nature, which is becoming more volatile and unpredictable, raising financing risks, which cannot all be absorbed by the ‘Big Four’ commercial banks. To optimally service the sector, the Bank should ideally get regular appropriations from the government in the form similar to the Blended Finance launched in 2022 with other state-owned development finance institutions.
Opportunities have tendencies of coming up dressed as adversities. Parts of northern KwaZulu Natal were buffeted by snow that disrupted traffic flow. This event is probably a primer that the country is headed for a wet summer season. The drought of 2019 was followed by wet seasons, which led to real growth in production and gross value of agriculture. Indeed, the South African Weather Service is forecasting above-normal rainfall in the central parts and the south-eastern coastal areas of the country during spring and early summer seasons. This above-normal rainfall forecast for these summer rainfall regions will likely have a positive impact on crop and livestock production.
Weather will be kind in certain parts of the country. The wet season is likely to bring bountiful harvest, which will compensate for the decline in soft commodity prices. The ‘super-centenarian’ Land Bank has renewed access to capital markets and finance is the lifeblood of business. This will be good for transformation and inclusivity at a time when the sector is poised for real growth.
For South Africa to fully realise agricultural benefits flowing from FOCAC and other bilateral trade deals, the agricultural sector needs more than the ‘Big Four’ commercial banks.
Lastly, the Monetary Policy Committee (MPC) announced an interest rate cut of 25 basis points, decreasing the repurchase rate (repo rate) from 8.25% to 8% and consequently, the prime lending rate from 11.75% to 11.50%. Total debt in agriculture is over R200 billion and the rate cut will not only lower farmers’ borrowing costs but will also lead to interest rate savings on outstanding debts and improve net profit margins. Furthermore, the rate cuts will improve farmers’ confidence for reinvestment especially as they budget for the new season and beyond.
In conclusion, the South African agricultural sector has seen its highs and lows in the past season with drought, loadshedding and disease outbreaks threatening the sector. However, the sector has proven to be resilient and is on the horizon for a golden era of opportunities and growth. Backed with financial assistance and support from the Land Bank and other lenders, savings from the interest rate cuts, prospects of a wet season and global presence, the new season is one that the sector can look forward to. Downside risks will continue to exist requiring proper and constant mitigations.
Disclaimer: The views expressed in this article is solely that of Agricultural Economist Andisa Mpembe, and does not necessarily reflect the views of Mzansi Agriculture Talk, his employers, or other associated parties.
