Corn producers desperate for rain and already in record debt will implore the government to provide guarantees for new bank loans as the worst drought in 23 years leaves farmers short of collateral before the new planting season.
While grain producers require debt security, livestock farmers may need cash to pay for feed after dry weather since the end of 2014 left grazing lands ravaged, Johannes Moller, president of the Agri SA farmers lobby, said by phone.
The group is gathering information from members as it prepares to initiate talks with the National Treasury and the Department of Agriculture, Forestry and Fisheries, he said.
“We’ll need assistance one way or the other, because there’s no way we can do it ourselves,” said Moller, whose Pretoria-based group is the biggest representative of commercial farmers in the country.
Only the state can help
“The only party who can make up this shortage is the state.” He wouldn’t put a figure on the money farmers may request because his group is still consulting members.
Farmers in Africa’s biggest corn producer will reduce 2016 season plantings of the grain to the smallest since 2011 because of poor rains in the main growing regions, according to the Crop Estimates Committee.
A drought in the previous season reduced producers’ harvest to the smallest since 2007. A strengthening El Nino pattern bringing dry conditions to sub-Saharan Africa has prompted the national weather service to predict below normal rainfall for the next four months.
A call from the industry for financial help could scarcely come at a worse time for the state’s coffers.
Moribund economy – unemployment 25%
Economic growth is at its slowest since a 2009 recession, unemployment has risen beyond 25%, while inflation is on course to breach the SA Reserve Bank’s (Sarb’s) 6% target early next year.
Protests by university students that won a backdown on tuition-fee increases have forced the government to fund an unanticipated R2.6bn shortfall.
Combined debt among farmers rose 14% last year to a record R117bn, according to Department of Agriculture figures.
By June, 2015 credit extension to the industry reached R93.3bn, almost all of it provided by the five biggest banks, Kuben Naidoo, a deputy governor of the South African Reserve Bank (SARB), said on October 28.
Nedbank [JSE:NED] has R8.96bn of loans to farmers on its books, said Daneel Rossouw, a divisional manager for agriculture at the Johannesburg-based institution.
Worse news may be in the way for farmers
“Drought will have an impact on increased debt levels, as well as bad debts,” Rossouw said in an emailed response to questions. Farmers who need it could potentially have their loans restructured or rolled over, he said.
Worse news may be on the way for farmers. They may face water rationing if the poor rainfall continues, Trevor Balzer, a deputy director-general of strategic projects at the Department of Water and Sanitation, told reporters in Johannesburg on Sunday.
Farms use 60% of country’s water
Agriculture accounts for about 60% of the country’s water demand, he said.
“They’re the first that take the cut,” Balzer said. “When we do that, we’ve got to bear in mind that we’re impacting on the economy of the country, the GDP. We’re impacting on food security. The second cut will be industry and mining.”
The Sarb doesn’t see farmers’ debt as posing a threat to the banking system, as it accounts for 1.75% of total credit extended, Sarbs’s Naidoo said. “I don’t think it’s a financial stability risk, but it has a significant social risk.”
By Andre Janse van Vuuren and Renee Bonorchis. Source: Fin 24