Agribusinesses have welcomed Finance Minister Pravin Gordhan’s R2.2 billion budget allocation to the agricultural sector, which would help the government meet its rural development and land reform objectives.

Rudi van Niekerk, an investment adviser at Agri-vie, said yesterday that the funds would probably be used to buy land to be leased out to emerging farmers.

He said this allocation would work towards achieving security of land ownership. This was necessary because it provided a safe environment to deploy capital, which was also important for food security, Van Niekerk said.

The increased support for agriculture as one of the drivers for job creation was a positive sign, he said, but noted that this was contradicted by labour legislation.

“We have increased allocation but on the other hand there are stringent labour laws which make it difficult for employers to appoint and dismiss employees. This scenario has caused producers to hire less and move to less labour intensive alternatives,” he said.

Philip Smith, the financial manager of Grain SA, said the R250 million appropriated for the Industrial Development Corporation’s agroprocessing fund was welcomed, but suggested more should be allocated for this purpose in order to have a significant influence.

Another positive feature was the allocation of funds for rural development, which would advance the development of black farmers.

Smith said the aim was to make emerging farmers commercially successful, and the assistance granted to the Land Bank and to rural development was very good news. This would contribute to job creation, overall growth and development, Smith noted.

Lindie Stroebel, the head of economic intelligence at the Agricultural Business Chamber, suggested that service delivery in the rural areas was a problem, which was where the agricultural sector was most active.

She said the fight against corruption in rural municipalities was mentioned in a national context, but the main focus should have been on how it would be controlled on a geographical basis.

Smith agreed, saying that the expenditure on provincial road maintenance was well-received. It was important for the government to put anti-fraud and corruption procedures in place and to execute them firmly, especially at local government level.

Gordhan also warned that increasing food and oil prices would pose a serious risk to inflation and economic stability.

High food prices will affect the poor disproportionately, which could retard rural development. It will increase overall inflation, raising the risk of interest rate hikes, which makes farmers’ loans more expensive.

Kgotso Radira, an economist at Investec Group, said rising oil prices would feed through into food prices.

Fertilisers and diesel were important input costs for the agricultural sector and rising diesel and fertiliser prices would have an impact on domestic food prices at the agricultural level first before affecting consumers at the retail level, Radira said.

Domestic agricultural food prices were still in deflationary mode – falling 3.3 percent year on year in December – but they were likely to start rising.

Furthermore, a number of key farming regions were affected by floods last month, which has exacerbated the increase in food prices.

High food prices affected poor people as more of their spending went to food than services, added Radira. - Ayanda Mdluli