The recent cut in interest rates, coupled with a reduction in petrol prices and a stronger rand, while marginal, will provide relief to farmers currently grappling with a tough economic environment, an analyst at First National Bank said on Thursday.
The South African Reserve Bank cut interest rates by 25 basis point with effect from July 19, saying it now expected economic growth for 2019 to average 0.6 percent, down from the one percent forecast in May.
The reduction in interest rates coupled with the possibility of further cuts later in 2020 would have a positive impact on profit margins as it improved farmers’ ability to service loans, said Paul Makube, senior agricultural economist at FNB Business.
Makube noted that harvesting was currently in full swing in the summer grain and oilseed areas, with a lot of fuel utilized including for transportation to the country’s silos.
"A further benefit for farmers who are currently experiencing cash flow constraints is the overall impact of a decline in crude oil prices on the entire agricultural value chain as inputs such as fertilizer, herbicides and pesticides are derivatives of crude oil," he said.
The recent strength in the rand exchange rate would have a positive impact on input prices in the sector by lowering the prices of imported inputs such as fertilizer, pesticides, and herbicides, Makube added.
Fertilizer and fuel are the major inputs in crop production particularly grains and account for approximately 35 percent and 11 percent of total variable costs.
- African News Agency (ANA)