Small-scale farmers face a rocky road amid covid-19 pandemic

FNB agri economist foresees some light at the end of a dark tunnel

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Small-scale farmers should brace themselves for further pressure as we ride out the covid-19 pandemic with the world slipping into an inevitable global recession and our economy shrinking by more than 6% this year, as estimated by the South African Reserve Bank (SARB).

Jobs are at risk and small-scale farmers, particularly those earning between R20,000 to a R1 million per annum through their agricultural activities, may find difficult times ahead, says Pertunia Setumo, agricultural economist at FNB Agri-Business.

However, the novel coronavirus might not only bring bad news for these farmers. Setumo predicts that the overall impact of covid-19 will further pressurize small-scale farmers who were already struggling with challenges like rising input costs, limited market access, limited pricing power and a shortage of critical agriculture and business skills. However, she emphasises, the covid-19 pandemic may open new opportunities as well.

Pressures on small-scale farmers

According to Setumo the novel coronavirus will cause small-scale wine farmers and spirit producers as well as beer brewers to experience a financial knock due to restrictions on local sales of alcoholic beverages. In addition, travel restrictions and gatherings limits farmers from earning extra income from agri-tourism and social events such as beer festivals and wine tasting events.

Access to markets is also a pressing issue for smaller producers. Most small growers sell their produce to the informal market, therefore reduced activity caused by lockdown restrictions on these markets will affect how much stock the informal trader will have access to.

“Fresh produce has limited shelf life and needs proper functioning cold storage to retain marketable quality, which is another challenge for small producers. Looking at livestock, demand for meat may come under pressure given that some consumers are not getting their full salaries, with others getting no salaries at all,” she says.

The poultry market is of concern as farms can’t keep birds for longer than eight weeks. After this it will start to eat into the producer’s profits and may lead to further burden on margins. Other livestock keepers may experience difficulties in marketing their stocks or even getting access to feed and supplements, given possible disruptions along the value chain.

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When it comes to labour availability, she says, “smaller producers may not have the capacity to transport their labour, therefore some may see themselves having to either cut working hours or operating on limited capacity. Farmers depend on events and gatherings such as farmer’s days to access information, and with the restrictions on the number of people per gathering, this tool is limited. Network reception issues in rural areas adds to the difficulty in information access,” she says.

The silver lining

However, there is a positive side to all of this. Setuma says the fuel price decline helped reduce input costs. Operating tractors and other equipment is cheaper for farmers, as is transport cost to markets. The price drop had a ripple effect on input costs such as fertilizers, pesticides and herbicides, considering they are a by-product of crude oil. This helped relieve some production cost pressure.

There has also been an increased demand for staple food items such as white maize by-products and some staple vegetables and fruits. However, some commodities have seen a decline in demand due to the closure of hotels and limited operation of fast foods and restaurants.

The recent interest rate cuts will relieve those farmers who are highly indebted and those wishing to acquire more credit. The current prime lending rate of 7.75% per annum essentially makes credit facilities cheaper. The government support of R1.2bn for small-scale farmers will help relieve some of the cost push pressures for the farmers who benefit from the fund.

“With some of the restrictions eased, we will see a slow return to normality as economic activity resume,” Setumo says.

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