The South African Reserve Bank (SARB) decided to raise the repo rate on Thursday 26 January 2023 from 7% to 7.25%, citing the impact of power cuts on economic growth as one of its reasons for doing so.

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According to Senior Agricultural Economist at FNB Agribusiness, Paul Makube, higher interest rates have an effect on farmers’ profit margins, and their ability to repay debt and expand production.

He says producers can, however, approach their bankers and disclose if they are experiencing financial challenges. He also advises farmers to plan operations wisely and make sound financial decisions during these challenging times.

“Load-shedding has caused havoc in the agriculture sector, and any further deterioration in electricity supply in the medium to long term may necessitate production cutbacks and consequently a domestic supply crunch for certain commodities such as poultry. 

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“While a domestic supply deficit is normally met through imports, they may also come at a huge cost given the weaker rand exchange rate and the avian-induced strength in international prices.

“The overall impact is margin compression in the agriculture sector and farmers may struggle to reach a break-even point, or even post negative margins, which may necessitate debt restructuring and more indebtedness.”

But, Makube says there might be good news on the horizon, given that the challenges caused by load-shedding are being attended to by the relevant people, and that there are talks about certainty around the levels and period of load-shedding.

He further shares that South Africa might see a steadying or even lowering repo rates when inflation gets back into the target range. 

“We’re already seeing inflation globally having declined significantly. So, that’s positive news in terms of the interest rate outlook.”

OFM News