Reserve Bank eases pressure on indebted farmers

Agricultural economist at the Western Cape department of agriculture explain how farmers are to benefit from the country's unchanged repo rate of 3.5%

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At farm level, the South African Reserve Bank’s (SARB) unanimous decision to keep the repo rate unchanged at 3.5% will bring relief to farmers who are up to their ears in debt and under pressure to pay accounts.

This will, particularly, be the case for farmers who are farming drought-stricken areas.

Lesetja Kganyago, SARB governor, made the announcement recently after a meeting of the monetary policy committee. Kganyago said the committee decided to hold the repurchase rate at 3.5%.

Repo rate: Tshepo Morokong is an agricultural economist at the Western Cape department of agriculture.
Tshepo Morokong is an agricultural economist at the Western Cape department of agriculture. Photo: Food For Mzansi

According to Tshepo Morokong, economist at the Western Cape department of agriculture, the unchanged repo rate significantly influences the macro-economic environment under which the agricultural sector operates.

“Favourable macro-economic conditions are essential to lower interests on loans and credits in agriculture and also increase aggregate demand,” he explains.

Meanwhile, Dr Mfusi Mjonono, manager of production economics at Western Cape department agriculture, adds that farmers will benefit greatly from this decision.

“At farm level, this will alleviate pressure on indebted farmers, especially farmers who are farming in drought-stricken areas,” Mjonono says.

Tractor sales to be boosted

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In his view, the low-interest rate also provides farmers with the opportunity to acquire necessary equipment, such as tractors, harvesting machines etc., that are needed for production.

Repo rate: Dr Mfusi Mjonono, manager of production economics at Western Cape department agriculture. Photo: Supplied/Food For Mzansi
Dr Mfusi Mjonono, manager of production economics at Western Cape department agriculture. Photo: Supplied/Food For Mzansi

Mjonono says, “Tractor sales in particular have been low in the past few years and the lower interest rates could boost the sale of these tractors.”

However, data released by the South African Agricultural Machinery Association earlier this month showed a positive uptake in tractors sales. Sales were up by 43% year-on-year in June, with 633 units sold.

According to Agbiz chief economist Wandile Sihlobo, so far, tractors sales have remained robust since mid-2020. Looking at total tractors sales for the first half of this year, SA is already 27% ahead of the corresponding period in 2020, with 3 385 units.

“However, it is worth noting that sales in the first half of last year were negatively affected by lockdown restrictions, so the base is slightly distorted,” he adds.

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