Farmers, banks ‘must think out the box’

8 September 2009

South African farmers need to access new markets and implement the latest technology if they are to become more competitive, while banks must expand their roles and introduce new products for the sector, says banking group Absa.

“Increasingly we are involved in the complete production and sales chain,” Absa Agribusiness GM Ernst Janovsky said in a statement last month. “For example, Absa Agribusiness will not only provide crop finance and insurance to a farmer, but will also act as broker, buyer and seller of his produce.

“In essence, we will fund the farmer, and the farmer will pay us with agricultural production.”

Rising input costs

According to the bank, South African farmers are facing difficult times, with input costs rising by more than 30% in 2008 – instead of the usual average annual three percent rise – due to rising fuel and fertiliser costs

As a result, many farmers operated at a loss, while around three percent simply left the business, Absa says, adding that farmers have no option but to control costs, become more productive and gain access to new markets.

“But that is easier said than done,” Janovsky said. “Local farmers are already the best in the world, and they are as productive as what the natural resources in South Africa allow.

“But, as it now stands, most cannot simply produce more crops on the same land or increase the rate at which their cows produce calves.”

New agricultural technologies

According to Absa, new agricultural technologies, like drought- or disease-resistant seeds, and new planting and irrigation techniques, are critical in overcoming biological limitations to increased productivity.

Limited access to new agricultural technologies and delays in registering these put farmers at a disadvantage to overseas producers, who already have other advantages, including government subsidies, Absa says, adding that local farmers must be helped to gain access to markets beyond South Africa’s borders.

“The truth is, on equal terms, South African farmers can compete with any farmer in the world, but farmers are hamstrung and many will not survive,” Janovksy said. “There is enormous potential, but it is being limited by access to international markets.”

Financial assistance

In South Africa, farmers who want to export have to do it all by themselves, Absa says, adding that export is out of reach for all but the biggest players due to huge costs and legal constraints – and this is where the country’s banks have a role to play.

Janovsky said this required banks to help farmers manage price and production volatility. Price volatility could be dealt with through forwards, derivatives and futures contracts, while production risk could be limited through insurance products covering adverse climate conditions, disease and parasites.

“In addition, we insist that the farmers we finance use the most up-to-date agricultural technologies,” he said. “We need to address this holistically, and the Department of Agriculture has a significant role to play in this.”

SAinfo reporter

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