RISING interest rates and higher input costs mean farmers and agribusinesses will have to better manage costs over and above what they are doing already, the Agricultural Business Chamber (Agbiz) warns.
Agbiz chief economist Wandile Sihlobo said yesterday that it was tough for farmers to escape rising input costs as they required fertilisers and agrochemicals to attain optimal yields.
“However, the rise in interest rates now comes at an even trickier time for the farming sector, where input costs such as fertiliser and animal feed remain elevated and are likely to stay at a higher level for some time.
"The increases in input costs are partly the result of the Russia-Ukraine war, which has limited fertiliser production and exports from Russia. Before the war, Russia was the world’s leading exporter of fertiliser, accounting for about 14 percent of global exports,” Sihlobo said.
He said supply constraints in China, partially caused by Covid-19 lockdowns and Chinese authorities’ decision that fertiliser companies should stop exporting to ensure the supply of the domestic chemical fertiliser market, had also contributed to higher input prices.
This was noteworthy because China was the second-largest exporter of fertiliser after Russia, making up an average of 12 percent of global exports.
“With the two significant fertiliser exporters, Russia and China, limited in the export market, the supplies have been reduced notably. It is for this reason that we believe that prices could remain elevated for some time.
"In March 2022, which was a critical month for the winter crop farmers in South Africa, domestic fertiliser prices were up by over 70 percent year-on-year. We saw a similar price trend in agrochemical prices.”
Agbiz said it was for this reason that it had consistently raised the issue of poor municipality service delivery and lack of maintenance of network industries such as roads, ports, water and electricity.
The current conditions meant that agribusinesses and farmers had to divert some of their resources to activities that the state would ordinarily have done. In the environment of constrained financial resources, there was limited flexibility for businesses to embark on such cost-intensive tasks.
Sihlobo said the discussion about rising global inflation and increases in interest rates was “hugely relevant” for South Africa’s agriculture and agribusiness sectors.
In 2020, when major central banks, including the South African Reserve Bank, lowered interest rates to record lows in response to the pandemic economic damage, the farming sector saw significant reductions in debt servicing costs. This was a welcome development for a sector that had outstanding debt of R191 billion in 2020.
“However, the rise in interest rates now comes at an even trickier time for the farming sector, where input costs such as fertiliser and animal feed remain elevated and are likely to stay at a higher level for some time,” he said.
Despite this, winter crop farmers intended to increase the area plantings in the 2022/23 production season by 6 percent.
“We will have a clearer view of whether they maintained these intentions in July when the Crop Estimates Committee releases its winter crop preliminary plantings data,” Sihlobo said.
Meanwhile, summer crop farmers would provide their intentions to plant for the 2022/23 production season later in the year, on October 26.
Other field crops, such as sugar cane, would require an even higher fertiliser usage during the replanting following the devastating floods in KwaZulu-Natal.
For the horticultural industry, disrupting important markets such as the Black Sea region, important for citrus and deciduous fruits, implied that profitability would be negatively affected.
“It will not be an easy task to reroute fruits to other markets, particularly citrus, whose export season starts this month. The logistical challenges at ports, exacerbated by the recent floods in KwaZulu-Natal, are an additional cost to the agribusiness.
“These difficulties also apply to the wine industry, livestock, and poultry industries as well. Foot-and-mouth disease has resulted in a temporary ban of South Africa’s wool, beef and livestock products to most export markets. These challenges come at a time when farmers face higher input costs, mainly for maize and soybeans,” Sihlobo said.
Agriculture is an important sector of the economy in South Africa, revered for both its ability to absorb labour, provide food security and reduce poverty, particularly in small towns. The sector is also a notable foreign currency earner through its exports, which were at a record $12.4 billion (R195bn) last year.
Meanwhile, South African Agricultural Machinery Association(Saama) chairman Karel Munnik said that the April tractor sales of 559 units were two units more than the 557 units sold in April last year.
“Year-to-date tractor sales are now 11 percent up on last year. Forty-four combine harvesters were sold in April, one unit more than the 43 units sold in April last year. On a year-to-date basis, combine harvester sales are now almost 21 percent up on last year,” Munnik said.
“With farmers currently very busy harvesting summer crops, the agricultural machinery market has 'taken a breather'. Once crop production figures have been assessed, planning for the next summer cropping season will begin. This, however, is going to be difficult as supply issues and steeply higher input costs must now be uppermost in this planning.
“Despite these constraints, expectations for the sales of agricultural machinery remain favourable and industry forecasts for the 2022 calendar year are that tractor and combine harvester sales will be similar to those in 2021.”
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