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Financial institutions are somewhat lackluster and apprehensive in support for farmers

Updated: Sep 22, 2020

Financial Institutions:

Financial institutions are somewhat lackluster and apprehensive to indulge in financial support for individually driven farming practices.


It is understood that financial institutions are risk aware , but it is also true that they have a constant appetite for business.


Lending and management of investments, together with providing a range of service products, are central to their business model. There is no doubt that such institutions have investigated the prospects and opportunities in the agricultural space.


Why, then, do they generally resort to the extension of limited loans rather than a direct investment or partnership in individual farming practices?


It is the contention that agriculture in South Africa has traditionally isolated itself from the rest of the business community? By doing so, agriculture removed itself from those principals and practices that are prevalent in the business community.

Agriculture became a unique and protected industry, not fully understood in the general sense by those outside the realm of its operations and requirements, with the result that trust and co-operative opportunities are lost to both parties.


Retail:

There is no doubt that the massive retail sector in food-related products in South Africa are aware of the risk to food security, with the declining numbers of farmers over the last 30 years. It is believed that they are positioning themselves for increased future imports if the agricultural industry fails to provide for the massive growth in population, effects of droughts and governmental policy.


What they are not doing is being pro-active in support for domestic production of agricultural products. With constructive involvement in partnerships, such institution’s can benefit tremendously through investments. This will allow the agricultural landscape to rise to levels never seen before in all spheres of the economy.


Commentators:

There is a lack of understanding in what makes a farmer, a farm and the Agriculture Industry. One of the biggest mistakes made by commentators is to isolate the results of agriculture on a yearly basis, solely as a representative of the future of the industry.

Financial institutions react accordingly to such assessments. If negatively portrayed, they become defensive and subsequently limit or withhold financial support.


Regional Impact:

What is expense for a farming enterprise is normally income for society at large in a multitude of disciplines and facets in our economy. This is particularly true in the rural areas of our country. Most towns and even cities are almost totally dependent on the agricultural activity in their respective areas. What is income and return to a farmer also find its way through purchases into the mainstream economies of individual towns.


It can be argued that none of the smaller towns, communities or cities will survive if not for the financial support by the agricultural sector.


Own Investments:

The farmer operates in a very expensive environment. The short-term funding afforded farmers to support capital assets as too operational costs, makes it extremely difficult for farmers to sustain their operations over long periods. This is constrictive and inhibits the farming potential at present.


If one considers the total agricultural debt of farmers in 2018 and compare that to the total asset value and equity in the industry, then one has to realize that over the ages, the farmer has been the biggest direct long-term investor in the agriculture industry through own investment on their respective farms.


Attempts should be made to validate the value and opportunities for the non-farming investor to invest in the South African agricultural domain.




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