Beneficiaries of Land Bank’s blended finance scheme advise fellow farmers to rethink their spending patterns. Despite increasing farmer strain in making loan repayments, these farmers reckon they can still beat high-interest rate payments.
The South African Reserve Bank’s Monetary Policy Committee (MPC) increased South Africa’s interest rate by 50 basis points on 25 May.
The decision received a mixed response from players in the agricultural sector, with many experts saying the increase would do more harm than good.
According to Frans Mokoena, a commercial farmer from Tweespruit in the Free State and beneficiary of Land Bank’s blended finance scheme, there is a way for farmers to beat high debt repayments.
Paying more when you can
Mokoena said the only way to beat the repayment is to pay extra than what the loan required. However, this only works when it is a fixed-loan repayment.
“If the loan payment is 36 months duration at the same price, whenever one has got surplus [money, you should use it to add to your monthly payment]. This way you could finish the loan before that stipulated period,” he said.
Mokoena said for those farmers who are barely coping, a repayment holiday is needed.
As it stands, the current debt level of the agricultural sector stands at about R205 billion as per data from the department of agriculture.
Minimise credit where possible
Sunflower farmer from Free State Happy Letsitsa, another one of the blended finance beneficiaries, agrees that a repayment holiday would help, if it does not come up with extra costs.
“Payment relief will in most cases cost more. I think the best way to navigate through this storm is for us as farmers to rethink our spending patterns.
“We need to relook at options of buying or renting the infrastructure we might need, credit must be minimised at all costs because it impacts negatively on the operations,” Letsitsa said.
Speak to your bank
Nedbank senior economist Isaac Matshego told Food For Mzansi that farmers needed to be honest about their financial standing before it is too late.
“Farmers who are having some repayment challenges should always approach their creditors to restructure their repayments when they face payment difficulties.
“It is always the best approach for farmers or any person paying a loan to go to their bank, as it not only protects the debtor but also helps to minimise losses for the creditor,” he said.
Matshego said engaging financial institutions when the going gets tough was easier than sitting and not reaching out for help, as that could lead to greater problems which might be detrimental to the operations of the farmer and lead to job losses or closure.
Jobs at risk
Letsitsa further pointed out that inflation on loans poses a serious threat to farmers, adding that with the recent repo rate increase, farmers will have to dig even deeper into their pockets.
“Having to repay an increased loan when you did not budget for it, is very devastating. This will result in us passing the increase to customers because we will be dealing with an increase in input costs,” he said.
Citrus farmer in Limpopo Dibesho Serage said the repo rate hike could even lead to job cuts as farmers find ways to try and spend less. Cutting down on labour is often one of the cost-cutting measures, he added.
“Everything on the farm is equally important, however, to keep going and now farmers will use fewer workers to get the work done. But also, that is a problem because fewer hands mean less productivity.
“I think what this forces a person to do is to plant less and rely on seasonal or temporary workers rather than having permanent staff on the farm,” he said.
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