While it is early to make a definitive assessment, one can argue that South Africa’s agricultural sector has been relatively more insulated from the Covid-19 pandemic than other sectors of the economy that are on complete lockdown. The food production value chains are operational, albeit not at optimal levels, as take-aways, ready-made meals, meal deliveries and the informal traders selling cooked food along the sidewalks are still prohibited.
The sub-sectors that are still in complete lockdown from a trading perspective include wool and mohair, cotton, tobacco, wine and alcoholic beverages, and floriculture (flowers). The harvesting and storage of primary agricultural produce to prevent wastage is permitted under strict health regulations. With that said, without trading, the farming business that has been adversely affected by lockdown restrictions could experience short-term cash flow challenges.
Over the past few weeks, there have been two major policy interventions that I think will help to ease financial pressures in the agricultural sector. The first, which was not directed specifically at the agriculture sector, is that the South African Reserve Bank has swiftly cut interest rates by a cumulative 225 basis points year to date. For a sector that has a record debt of R168-billion, the relief that lower interest rates could bring is substantial. Assuming that all the debt is on flexible interest rates, I estimate that the lower interest rates could bring savings in debt-service costs of about R3.8-billion for farmers over 12 months.
Second, for financially distressed small-scale farmers, the Department of Agriculture, Land Reform and Rural Development has ring-fenced R1.2-billion. This prioritises the poultry sector, livestock and vegetables, among other agricultural commodities that will be selected on a case-by-case basis. The farmers within the Proactive Land Acquisition Strategy programme are also included in this package.
While it is crucial to assist small-scale farmers who were already struggling prior to the Covid-19 pandemic, it is important to also continuously assess the impact of the pandemic on established farmers to ensure that national food security is maintained at all times. To this effect, the manner in which the department evaluates the impact of the Covid-19 regulations on these specific farmers and the mechanisms on how the funds will be disbursed has to balance the need for transformative disbursements and food security.
I believe that an assessment of farmers’ financial conditions and the ability to produce over the coming months could be helpful in strategically selecting additional beneficiaries for this fund. Ultimately, the goal should be to assist those who have been negatively affected by either weak demand and struggling to proceed into the next production cycle or those whose farming businesses were hard hit by regulations. For this process, one requires a longer time-frame than the one currently stipulated by the government, which is 8-22 April.
What’s more, it is plausible to argue that regulatory easing in the agricultural sector could be more effective than financial interventions. As we approach the end of the lockdown, 30 April, policymakers will have to devise strategies to gradually ease trading conditions in the currently prohibited sub-sectors of agriculture. Some of these sub-sectors, such as the wool and mohair industry, support small-scale farmers in the rural Eastern Cape. The wine industry is also among the key job-creating industries, with roughly 43,000 jobs. The same is true for all the aforementioned industries in terms of economic and job-creating importance in the rural economy.
Overall, the recent policy interventions, specifically on interest rates, are a welcome relief on easing the financial conditions of the indebted farmers. The financial support to small-scale farmers will need further refinement on the criteria and also the timing of the release of the finance to maximise its impact.
Ultimately, the easing of the lockdown restrictions, with strict adherence to health regulations in the process, could have a more positive impact on South Africa’s agricultural sector. In the process, however, it would be important to monitor regulations in South Africa’s trading partners as those could ultimately influence business conditions domestically. Global supply chains are likely to take months to normalise, even after the lockdown restrictions around the world start to ease. South Africa’s agricultural sector is export-dependent, with exports accounting for nearly half of the production in value terms. DM