How would an interest rate hike affect farmers who are barely coping under the strain of a tough economy? It could spell trouble, some industry experts warn, as farmers will now have to cough up more on existing debt repayments and this could possibly spill over into loss of livelihood.
The repo rate hike of 25 basis points that Reserve Bank governor Lesetja Kganyago announced last week, will in all likelihood be the first of many. If current quarterly projection models by Mzansi’s central bank play out as expected, the country could see further repo rate increases every quarter this year, and more until the end of 2024.
And as the repo rate directly influences the interest that commercial banks charge on their loans to clients, every repo rate hike effectively means bigger monthly instalments for any farmer or consumer repaying a loan.
According to Lebogang Sethusha of Agri SA, this spells a difficult year ahead for farmers who already face several industry challenges. Although Agri SA does not have statistics on how many farmers are in debt, the organisation places collective farming debt in the country at R183 billion.
“So, what the rate hike means is that the cost of borrowing has gone up and farmers that are in debt may find themselves paying more, especially at a time when they are contending with other escalating costs such as fertilisers, electricity and fuel.
“Also, farmers have issues like the risk of income losses emanating from recent rains and locust outbreaks.”
Sethusha says job losses might be on the cards, taking into consideration that the national minimum wage is set to increase this year.
“The culmination of these factors with the impending increase in labour costs in the form of the national minimum wage increase might have a ripple effect on job losses as the farmers’ ability to continue their enterprises successfully and remain sustainable is placed at risk,” she says.
Farmers already under massive strain
A kiwifruit farmer in KwaZulu-Natal, Peter Nicholson, agrees that the repo rate increase will not be good for agriculture, or any business for that matter, considering the fragile economy of South Africa. He says further job creation will not be possible in the current climate.
“Farmers are under massive strain now, and this is going to make things even more difficult. Farmers are not supported by government. We should be getting subsidies but it is not happening.
“Fertiliser prices have gone through the roof. The massive [amounts with which] fuel prices are going up every now and then are crazy. The consumer will be hit the hardest by this increase.”
Nicholson says that while farmers are expected to feed the nation and ensure that food security is not under threat in the country, they are also struggling to make ends meet with the rise in operational costs.
A blow to an otherwise promising season
Paul Makube, a senior agricultural economist at FNB Agri-Business, recently said that Mzansi’s agriculture sector was set on “another excellent season despite cost pressures” before the Reserve Bank announcement.
He felt that the past record low interest rates gave farmers a chance to replace and replenish machinery and equipment which saw the total tractor and combine harvester sales for 2021 growing by 26.4% and 44.9%, respectively, compared to the previous year.
But, he said, “Farmers face higher debt serving costs from rising interest rates which will erode profit margins … in an environment of higher input costs emanating from the massive upswing in fuel, fertiliser, pesticides, and herbicides experienced during the current season.
“A further dampener to what was supposed to be an excellent agriculture season is that much needed seasonal rains on the back of the La Nina weather pattern flooded crops, caused damages in other areas, and delayed planting.”
North West University Business School economist Professor Raymond Parsons warned that the subdued economy limits the ability of producers to pass on cost increases to consumers. “The danger here is that an aggressive rise in interest rates this year may then instead just harm output and employment.”
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