South Africa’s latest repo rate hike has been met with cautious acceptance by the agricultural sector. Brendan Jacobs, head of agribusiness at Standard Bank South Africa’s business and commercial banking division, said the increase comes at a time when farmers continue to battle mounting financial pressure.
The South African Reserve Bank increased the repo rate by 0.25 percentage points to 7%, hiking the prime lending rate to 10.5%.
With the government failing to halt yet another fuel hike, consumers are going to dig deep in their pockets in the coming months, with food prices expected to rise.
‘Increase comes at a bad time’
Jacobs said that, with fuel costs driven higher by the Middle East conflict feeding into broader price pressures, the timing is particularly challenging for agriculture. The first hike since May 2023 comes amid rising input costs.
“Despite these headwinds, the sector’s resilience and coordinated efforts across the value chain are expected to sustain performance.”
He explained that while the numbers at this stage might not be alarming, the Reserve Bank has stated that it will act sooner rather than later on the impact of inflation. The impact will be felt in the coming months, Jacobs warned.
“From an agricultural perspective, the first increase since May 2023 comes at a bad time given the debt cycle in the sector, rising costs, low commodity prices, commodity volatility, and forecasts of an El Niño weather event in late 2026,” he said.
The Institute for Economic Justice (IEJ) said in a statement that leaving the repo rate unchanged would have demonstrated flexibility and patience.
“To overcome this vulnerability to imported inflation, South Africa needs to invest in more robust local productive capacity. This requires, amongst other elements, easier access to credit, something curtailed by high policy rates.
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“South Africa’s real economy remains structurally fragile; a broader macroeconomic policy toolkit is required to stabilise a structurally vulnerable small open economy,” the IEJ said.
According to the IEJ, further financing of renewable energy localisation, grid infrastructure, rail and port rehabilitation, climate-resilient agriculture, and agro-processing is key to unlocking the economy in major sectors and creating jobs.
“The route to genuine price stability lies in energy sovereignty, food sovereignty, public investment, green industrialisation, fair credit allocation, employment creation, and macroeconomic coordination. True stability requires an economy capable of producing, employing, caring, and transforming.”
More pressure across value chain
The Bureau for Food and Agricultural Policy (BFAP) monthly food inflation brief stated that sharp increases in electricity and fuel prices are expected to intensify the pressure on consumers in the coming months.
“Food commodity prices are expected to remain relatively moderate in the coming months. Changes in meat prices remain dependent on the ongoing management of foot-and-mouth disease.
“Ample summer crop supplies will support continued easing of prices; however, a recovery in regional demand, sustained increases in fuel and fertiliser prices if the Middle East conflict persists.”
According to BFAP, higher electricity and fuel costs are increasing processing, packaging, and distribution expenses across the value chain.
“These cost pressures are contributing to the increasing disconnect between retail food prices and on-farm producer prices.”
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