SA’s ‘junk status’ not all bad news for farmers

Farmers could have a stabilising effect on the South African economy despite Standard & Poor’s downgrading the country’s credit rating to junk status.

SA’s ‘junk status’ not all bad news for farmers
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According to a TAU SA statement, the agricultural sector’s only priority is to put food on the table of the country’s people, and to do it as affordably as possible.

“The junk status will have an impact on food prices. Lessons [learnt] from Egypt have shown that when food prices become so high that it is unaffordable, it can lead to a revolution. Farmers can have the stabilising power in the country as long as they are not distracted and deceived by government’s failing policies,” TAU SA president, Louis Meintjes, said in the statement.

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Dr Simphiwe Ngqangweni, senior manager for markets and economic research centre at the National Agricultural Marketing Council, told Farmer’s Weekly that the country’s rating downgrade may appear to be bad news for the economy, but in reality some may benefit in the short or medium term.

“South African agricultural exporters stand to benefit from the depreciation of the rand through increased demand for South African products that appear cheaper from a foreign buyer’s point of view. The question we need to answer is whether the net effect on the country’s traders (importers and exporters) is positive or negative? That is still to be quantified,” Ngqangweni said.

However, inflation may increase as the rand depreciates, due to the higher cost of imports such as fertiliser and other agricultural inputs.

In the event that the demand for South Africa’s “perceived cheaper products” increases, it may lead to increased production. However, increased agricultural production would only be possible in an environment in which it is conducive to do business and where there are incentives to do so, Ngqangweni said.

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Interest rates may also go up in the medium to long term, which would increase the cost of debt for agricultural investors, both at farm level and along the rest of the agricultural value chain, according to Ngqangweni.

A credit downgrade means that a country’s risk profile increases, and therefore the cost of borrowing rises.  Repayments on existing debt may also escalate due to increased interest on loans, which reduces available funds that could be invested elsewhere, Ngqangweni said.

Gerhard Uys grew up as a real city lad, but spends his free time hiking and visiting family farms. He learnt the journalism trade as a freelance writer and photographer in the lifestyle industry, but having decided that he will be a cattle farmer by the age of 45 he now indulges his passion for farming by writing about agriculture. He feels Farmer’s Weekly is a platform for both developed and emerging farmers to learn additional farming skills and therefore takes the job of relaying practical information seriously.