Good financial literacy helps improve farming practices and has the potential of even bettering production yield. Industry experts believe that this is a “make or break” practice for farmers who want to commercialise.
In the era of many uncertainties and a tough economic climate knowing what you do with your money is important to ensure that you are able to brace for the storms.
Manage your wealth
According to SSK agriculture consultant Henk de Beer, financial literacy is important to farmers because it provides them with the knowledge and skills to set financial goals, plan and manage their finances, as well as build wealth over time.
The reason, he believes, is that management involves planning, organising, coordinating, and directing farming activities to accomplish specific goals and objectives effectively.
“It often involves changing behaviour, shifting from reactive to proactive decision making, and learning to plan, analyse and control available finances effectively.
“Good financial practices are an essential part of good management,” he added.
According to De Beer, the basics of good financial practices are good filing (invoices, receipts, etc.) and up-to-date bookkeeping. From this financial analysis, planning, budgeting, decision making, and directing of activities can be done.
He suggested that a thorough bookkeeping system is capable of supplying correct and up-to-date financial information, which is why farmers should use this information as a foundation for good decision-making (short and long-term) while not overextending their financial capabilities.
“Remember the control aspect of management is often neglected leading to unsuccessful ventures,” he said.
Treating farming as a business
Meanwhile, according to Joburg crop farmer Philani Mzila, farming is a business, and like any other business, it requires effective financial planning to be sustainable and profitable.
“Farmers need to manage a variety of costs, such as labour, equipment, and inputs like seeds and fertilisers, while also forecasting revenues from crop sales and having the financial knowledge to make informed financial decisions.
“Farming also experiences seasonal income fluctuations and is affected by external factors like weather conditions and market prices,” he said.
He listed a list of must-dos in farming:
- Budget: Always keep a detailed budget to manage expenses and revenues.
- Diversify income: Don’t rely on a single crop.
- Invest in infrastructure and technology: Technology can improve the yield and efficiency of your farm.
- Use available financial tools: Take advantage of grants, subsidies, and low-interest loans aimed at supporting farmers.
Doing the right thing
According to Joburg crop farmer Mbali Nwoko, understanding financial principles helps in allocating resources efficiently. She added that it ensures that you allocate your capital, labour, and land in ways that maximise yield and minimise waste.
“Financial literacy enables you to assess and mitigate risks effectively. It helps you plan for unforeseen circumstances such as droughts, pests, or market fluctuations.
“Good financial management ensures the farm’s long-term sustainability. You can reinvest profits into the business, upgrade equipment, and expand operations strategically,” she said.
Nwoko said farmers often require loans for capital investments which is why she believes that financial literacy helps in managing debt wisely, avoiding over-leverage, and understanding interest rates and repayment terms.
Maintaining a cash reserve is crucial
“The biggest financial mistake I made as a farmer was underestimating the importance of cash flow management. I did not have a sufficient cash reserve for unexpected expenses, and this led to financial strain during a year with unfavourable weather conditions,” she said.
One of the biggest financial literacy lessons she has learned is that maintaining a robust cash reserve is vital to weathering financial challenges in farming, adding that it is important for her to reduce mistakes by avoiding overextending debt, neglecting market analysis, practising poor record-keeping and ignoring sustainability.
“As a farmer, you need to be there on-site during the planting and harvesting period.
Do ask for financial advice regarding the expansion of your business,” she added.
Learning from mistakes
The biggest mistake horticulture producer Lorato Mafethe in Mafikeng in North West made was not keeping records from the beginning of her project, but with time, she managed to start tracking every movement that happened on her farm.
“I did not have a mentor when I began my business, so it is important to have a mentor that will guide you in achieving your goal and give you the ins and outs of the business,” she said.
For her, using a personal bank account is a big “no” and suggests that farmers rather make use of a separate account to manage the farm.
“Financial literacy is important in knowing how money is spent in the farming business. Knowing how much profit you are going to make in terms of the projections you have set for the business is key. You need to be aware of the cash injections that are used for operations,” she said.
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