Here is Sihlobo...

 It is important to look at the impact of the Covid-19 virus on farmers spesifically. He says taking that into account the South Africa’s farming sector is heavily in debt and as of 2018, the total farm debt was at record R168 billion. About 60% of the debt is with the commercial banks, 29% is with the Land Bank, with the rest spread between agricultural cooperatives, private persons and other institutions. 

The escalation of debt, particularly in more recent years, was because of both the expansion in area farmed, specifically in horticulture and to some extent, the financial pressure brought by frequent droughts, which have limited agricultural output on various farms over the recent past, says Sihlobo.

He adds the 2019/20 production season follows two seasons which were hampered by drought in some areas, negatively affecting farmers’ finances. In ordinary times, the expected large output in both field crops and horticulture this season would be part of the recovery phase, but there is doubt if that will be the case in the face of COVID-19, which has disrupted supply chains and thereby leading to lower global demand. 

South Africa’s agricultural sector is export-oriented. In value terms, roughly half of the products the country produces are destined for export markets.

Locally, some agricultural industries’ performance is interlinked to some sectors, which are hard hit by COVID-19. A case in point is the wine industry, whose performance is somewhat influenced by tourism. The decline in tourism will hurt this sector. The COVID-19 pandemic comes at a time when wine grapes production had started to recover following seasons of drought. This essentially means the South African wine industry could be hampered by both the potential decline in demand locally and the global market, specifically in Europe, which is now the epicentre of the COVID-19 pandemic.

Through export earnings and domestic sales, farmers can generate the revenue necessary for servicing their debt, amongst other things. Hence, as policymakers and private financial institutions try to find ways to ease the possible financial pressures from COVID-19, it might be helpful to also consider the farm debt issue.

Global agricultural commodity prices have already taken a knock because of fears of slowing demand due to COVID-19. If we consider maize, soybean, and wheat prices, there has been a 10%, 8%, and 6% decline over the past month, respectively. However, global price shifts have thus far not spilt over to the South African market, which is currently supported by growing demand for the above-mentioned commodities from the Southern Africa region countries and the relatively weaker domestic currency. 

Sihlobo says over time however, the South African agricultural market could experience a similar trend, particularly given that there are already expected large supplies.

That was Wandile Sihlobo, chief economist, at the Agricultural Business Chamber of South Africa, Agbiz, only on Before Dawn.

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