The South African Reserve Bank (SARB) is expected to increase the repo rate again. For farmers with a positive bank balance, the hike, projected at anything between 25 and 50 basis points, could spell good news. But for cash-stripped food producers, there is unfortunately no upside.
Farmers are waiting with bated breath for SARB’s interest rate announcement today. The most recent interest rate hike saw the Monetary Policy Committee increase the lending rate by 50 basis points.
According to Kulani Siweya, chief economist at Agri SA, the increase, whichever way it swings this time around, remains concerning given the fact that farmers are already hard-pressed from all sides.
“Farmers, just like the rest of us are being told to tighten our belts, but at this rate farmers (and us) can’t afford belts anymore.”
Farm debt already high
As it stands, the current debt level of the agricultural sector stands at about R205 billion as per data from the department of agriculture.
“Farmers are having to contend with elevated and increased inputs costs, particularly when you consider electricity with the need to fund alternative energy to keep farming operations going,” Siweya said.
With input prices on the rise, farmers are feeling the pressure. According to Siweya, this means that the Reserve Bank’s announcement could not have come at a worse time.
Stats released by Absa point to farmers having to pay 40% more for inputs to maintain the current levels of production that we have seen in the last couple of years.
“Coming up on the other side is fuel and fertiliser prices, and all those other input costs that come into play. We are worried that it is further pressing on to the profit margins of farmers and it is unsustainable,” Siweya said.
How the repo rate works
The repo rate is the rate at which the Reserve Bank lends money to South Africa’s commercial banks. It’s adjusted to keep inflation within a specific target range
The theory is that by upping the repo rate, the Reserve Bank makes borrowing less attractive. This reduces the amount of money in the economy, so there’s less to spend. As spending slows, it’s harder to increase prices and this helps keeps inflation in check.
There is an upside to a hike in inflation, some experts suggest. For farmers with a bit of extra cash to save, a hike in the repo rate could positively affect your return on savings. This is because when interest rates rise, so do returns on savings.
However, Siweya points out farm earnings have been low for most South African farmers due to high input costs.
“Word from the farmers on the ground is that everything that they are getting goes back into the farm to at least maintain the current levels of production. [Farmers can’t] even expand [operations],” he said.
Little scope for savings
Eric Mauwane, a commercial red, green and yellow pepper farmer in Gauteng, said every cent he makes goes back into the farm. ” It doesn’t stay in the bank for over 24 hours. It covers costs from diesel to deliver produce, more money towards labour since hourly rates are increased, fertiliser is even worse but seeds and seedlings costs have increased a month ago,” he said.
Mauwane said farmers are basically farming to survive. He barely affords to pay salaries.
Nonhlanhla Joye is a multi-award-winning small-scale farmer and the founder and CEO of Umgibe Farming Organics and Training College. As a small producer, she has not been able to save for a rainy day since the dawn of the Covid-19 pandemic.
“It’s impossible for a small-scale farmer to save. In fact, there is nothing to save. The inputs are costly and with the tight economy, it is difficult for us to generate enough money to save,” Joye told Food For Mzansi.
Covering all the costs
With inflation increasing, it is difficult for farmers to stick to budget projections, she said. This is made worse when there is a hike in input costs. “So, whatever projections and budget you have done at the beginning of the project is thrown out of the window the minute the feed companies increase prices, for example.”
On top of this, she said, additional costs like the national minimum wage add further pressures.
The department of employment and labour recently announced that minimum wage earners would earn a minimum rate of R25.42. This came into effect on 1 March 2023.
Retrenchments a reality
Joye said as a result, she had to retrench workers “It is affecting us very badly. You find yourself working from hand to mouth, and sometimes it doesn’t even get to the mouth,” she said.
Joye remembers a time when she was able to save money. This was in the early stages of her farming journey in 2014 when she started a small-scale farming operation.
“I could put money away and encourage other farmers to save. I even saved enough money to build an agricultural college.”
Meanwhile, Siweya said Agri SA is concerned about food security. They hope that at some point the trajectory would change, allowing farmers to become more sustainable.
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