Rate hike puts more pressure on commercial farmers

Cape Town - The interest rate increase will put more pressure on commercial farmers who are already facing rising debt levels due to the weak rand and severe drought which is pushing up input costs, warned Dawie Maree, Head of Information and Marketing at FNB Agriculture.
 
Struggling livestock farmers will be hardest hit, since they have already sold off some of their stock and used the funds to cover debt. They can no longer afford to sell more stock to account for the interest rate increase.

Affordability will be a major issue, especially disposable income to buy farm feed, said Maree.  

"Because consumers will be hard pressed, we are likely to see a lower demand for agricultural commodities in the long term, especially for luxury products," he added.

"On a positive note, we might see retailers absorbing the interest rate increase to draw more customers into their stores, by not increasing costs for staple foods such as bread and milk."  

He pointed out that the impact of the interest rate increase will vary from farmer to farmer depending on the size of their operation.

"We encourage farmers who are struggling to service their debt to seek financial advice and approach their banks for assistance," said Maree.

The drought situation is not limited to South Africa, but has an extensive regional reach that will have further socio-economic and food security ramifications at regional level as well, Agri SA and the SA Agricultural Business Chamber (Agbiz) said last week.

READ: Agriculture sector warns of wider drought impact

According to Agri SA and Agbiz, good rainfall in the summer rainfall region of South Africa over the next few months is possible and can still break the drought cycle and ensure relief for crop and livestock farmers especially.

Although the prices of red meat are expected to fall over the next two months due to the persistent dry weather conditions, consumers must be aware that the prices are expected to increase significantly from about March next year.

Paul Makube, senior agricultural economist at FNB, said earlier this week that the prices of red meat are expected to fall in the short term, because farmers are reducing their livestock as a result of deteriorating pastures due to drought - the worst in more than 20 years - and the current high feed-grain prices.

Despite the temporary relief on meat prices, consumers should not be misled, warned Makube, as the drought conditions affecting the agricultural industry will have negative consequences on food prices in the longer term.

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