“Farming outlook is positive” – Absa man

Louis von Zeuner, Absa group executive director, speaks to Annelie Coleman about the bank’s involvement in agriculture, and why the outlook for farmers is positive.
Issue date : 03 July 2009

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Louis von Zeuner, Absa group executive director, speaks to Annelie Coleman
about the bank’s involvement in agriculture, and why the outlook for farmers is positive.

You’ve said agriculture is one of Absa’s three core businesses and that the bank’s never been more committed to the sector. What does this mean for farmers in practical terms?
Absa’s roots are in agriculture and we’ve become the leading agricultural commercial bank. We have to deliver in an environment in which commercial agriculture operates without government support, while competing in a free market with our counterparts in other world economies, which are often highly subsidised.
The delivery of commodity-based products in an environment of price and production risk is therefore hugely important if agriculture is to survive, as farmers are price-takers at both ends – input and output.
By developing new commodity-based products over the years, we’ve demonstrated our commitment to agriculture and understanding of the agricultural segment. We intend to continue to deliver new, innovative financial products throughout the value chain.

What does the future hold for commercial agriculture?
Since the mid 1990s, farm profits have improved substantially, mainly due to the deregulation of the agricultural market. As a result, there’s been an improvement in farm debt ratios from 60% in early 2000 to 39% in 2009. Of course, there will be cyclical movements but currently the outlook is positive.

There’s a perception that commercial agriculture is an isolated economic sector beleaguered by politicians, especially with regard to issues like land reform. What contribution can Absa make?

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I think we’ve proved ourselves in this regard by ensuring the market remains free. Free access to land remains one of the principles of economic freedom.
During the last election, it became clear that although politicians had neglected agricultural reform, there was a shift toward the efficient utilisation of land to improve food security. In the long run, this will create an opportunity to develop black farmers and Absa is an active participant in emerging agriculture programmes.

What are your expectations for input prices?
Input prices have softened and are expected to decline even further, giving some relief to farmers.

Why is Absa’s agricultural division doing particularly well?
In an adverse economic environment, people lose their jobs, their cars and homes. But they still need to eat, so food prices tend to be relatively inelastic.
Add to this the support from government in terms of social spend – the bulk of it being spent on food – and it means agriculture is indirectly subsidised by government. So agriculture doesn’t tend to follow the rest of society in reacting to adversities in the economy.

It’s important for the bank to get collectively involved in the agricultural debate, as this will ensure the effective functioning of the market, which will create an opportunity for all institutions to make a living.

How does land reform impact on your business?
It creates opportunities for banks to do new business, and if done correctly, this could have a positive impact on property values. It could improve the collateral position in agriculture, making it more feasible for banks to support land reform.
There are also risks, for example where access to government funds is based on the number of beneficiaries (the Land Redistribution for Agricultural Development programme) rather than on production sustainability. More debate is needed.

What’s the agricultural sector’s contribution to South Africa’s economy?
Although primary agriculture only contributes about 4% to South Africa’s GDP, agriculture through its backward (input suppliers) and forward (food manufacturing and retail) linkage contributes more than 27% of South Africa’s GDP.
Given the current slowdown in the economy, agriculture actually contributes about 1,5% of the growth of our economy.

South Africa’s food inflation over the past two years was much lower than some of the world’s key economies. This was mainly due to the production of surplus food here, with the result that agricultural commodity prices declined to export parity prices.
Agriculture can therefore be seen as one of the pillars of the South African economy in troubled times. |fw

Annelie Coleman represents Farmer’s Weekly in the Free State, North West and Northern Cape. Agriculture is in her blood. She grew up on a maize farm in the Wesselsbron district where her brother is still continuing with the family business. Annelie is passionate about the area she works in and calls it ‘God’s own country’. She’s particularly interested in beef cattle farming, especially with the indigenous African breeds. She’s an avid reader and owns a comprehensive collection of Africana covering hunting in colonial Africa, missionary history of same period, as well as Rhodesian literature.