Tough times ahead for SA agriculture

Growth in the agricultural industry declined by 12,6% in the third quarter of 2015, and agricultural economists fear the sector will struggle to pull itself out of recession in 2016.

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This was according to Prof Johan Willemse, Dr Dirk Strydom and Manfred Venter from the Department of Agricultural Economics at the University of the Free State.

They jointly released a paper that discusses the implications of the drought on the economy, agricultural markets, food processors, input suppliers and consumers.

The industry is faced with numerous dilemmas, the latest being President Zuma’s unwarranted firing of finance minister Nhlanhla Nene.

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This caused the rand to decline sharply as developed economies withdrew capital from South Africa. The depreciation of the rand increased white maize prices to a record level of close to R4 000/t.

The economists warn that farmers and the broader agriculture sector will struggle to recover from the combined impact of the latest interest rate hike, exchange rate depletion, and the multi-year drought.

The effect of a severe sub-optimal crop will be felt throughout the value chain into 2016 and beyond. The absence of ‘safety nets’ would further contribute to the sector’s poor performance.

During drought years farmers have to use their personal capital reserves as collateral for additional borrowing and to absorb losses. Many farmers now find themselves in a situation where they have depleted their resources.

This forces them to make use of credit to finance production costs for the new season.

The future of many livestock producers also hangs in the balance. Farmers are purchasing animal feed at high prices just to get their animals market ready. However, as many producers are already struggling financially, emergency selling and slaughtering are pushing down farm gate prices.