What is your opinion on the Expropriation Bill and how it will affect agriculture?
It’s still early days, but as it currently stands, it won’t be accepted in a court. Changes must be made to it, otherwise local and international negativity will be created around this whole scenario. The agriculture department will achieve more through the AgriBEE Charter.
Will the amendment to expropriate property at below market value be passed?
You can’t do this within our constitution. It will never fly in the higher courts.
But with the fiscus not allocating enough money to land reform, does this suggest that expropriating below market value will be acceptable?
It might become a kind of instrument, but in my opinion, agricultural land value will continue to increase because commodity prices have pushed up land prices significantly. The fact is that farmers affected by restitution are buying up other farms and are starting to farm again, so the more you pay out at the end of the day, the more farmers will buy up other land because they just want to farm. It’s actually creating a new market for land, so I’m not sure that Land Affairs is achieving its goal of keeping prices down. Economically, farming is on a new wicket with higher commodity prices and this will drive property values higher.
Is it a good or bad time for farmers to buy new land?
Because of new markets being created for agricultural commodities due to free market conditions and global warming, global food prices in general have increased by 60%, so it’s a good time to be in agriculture.
Economists have said the slowdown is normal and necessary. Why is that so?
Because continued growth will continue to drive inflation. The death of high commodity prices is high commodity prices – people will start overproducing and prices will drop. Conversely, the death of low prices is low prices, because people will stop producing and then prices will increase again. In capitalism, death is always close. If you continue to grow, it becomes inflationary and as soon as this happens, people will start demanding more money and your input costs will increase, so you won’t be profitable anymore.
Why is our economy so closely linked to that of the US?
As the US continues to slide, it makes us look good and because commodities are sold in dollars, you’ll see their prices rise. As long as commodity prices continue to increase they buffer us because we are a commodity-producing country. Added to that is capitalism catching on in other countries such as India, China and Russia, and this creates a new demand for certain products, including oil. So the two things driving our commodity prices are the high demand in the new economies and the weakness of the dollar. If you ask me where we’re going, I’d say we’re roughly in the same place as the US in terms of the rand-dollar exchange rate, but commodity prices will continue to increase because we are weakening and so is the dollar. But our export markets will continue to strengthen because we export most of our agricultural produce to Europe, whose economy is strengthening against that of the US.
At the beginning of the year, you predicted economic growth would hit 3,8% and slow down. How will slower growth affect agriculture as a business, as well as consumers?
Slower growth will hit the demand for food and put food prices under pressure locally, which will decrease demand locally. World consumer demand is also declining because of less money.
When do you think the economy will start to strengthen again?
Unfortunately, I see a little bit of a slowdown in the world economy that will push commodity prices down a bit and take the buying power away from the consumer. It will take us about four or five years to get out of this cycle, so I don’t see growth in the short term. The only advantage is the export market. The commodity boon will afford us a softer landing.
How will interest rate increases affect farmers’ credit in the future?
Because of higher profitability in the industry, I think farmers will be able to manage the cycle with relative ease.
Do you think it’s a good idea for Eskom to implement exorbitant tariffs, instead of making smaller increments over a longer period of time?
I think what Eskom is trying to do is to make people aware of the cost of energy and to get them to save electricity. We’ve always said let the market control demand, so if Eskom hikes prices by an enormous amount, the market will react and mines will either start closing down or they will become more effective and use energy more economically. This increase will really change behaviour, which is what I think Eskom wants to achieve. But if it wants that money to build new powerplants, then I think that’s the wrong way to access finance because at the end of the day, Eskom can do so in smaller increments as it will only spend that money once the plants are built. So in principle, Eskom doesn’t need the money right now.
How should farmers budget for this year if electricity costs increase exorbitantly, and if interest rates rise again, as do municipal property rates?
Improve production or revenue by 35% to offset the 30% to 35% cost increases. Commodity prices have already increased by more than that, so farmers are actually covered.
Is there any way farmers can insure against losses incurred through powercuts?
No. The farmers worst affected are those using cooling facilities like abattoirs, fruit producers and the milking parlours, but I think most of those farmers already have generators. This will push up food costs because diesel is expensive. But given consumer resistance to higher food prices most farmers will, to a large extent, have to absorb those costs.
Are high input costs offsetting the good prices many farmers are achieving for their commodities?
I think farmers will be able to absorb higher input costs to some extent. While input costs have increased by about 30% to 35%, good commodity prices will afford farmers some leeway. The question is what will happen next year because I don’t think commodity prices are going to continue at current levels.
Do you have any advice for farmers whose profit margins are under serious pressure due to rising input costs?
Use the latest technology and be more productive when using your inputs. No-tillage will also come in quite strongly this year because of the high diesel price.
How have the past few months been as you’ve adjusted to your new responsibilities at Absa AgriBusiness?
My responsibilities are roughly the same in the sense that I’m the head of the agricultural division at Absa. We’ve just formed our strategy and structure and are now starting with product development. |fw