The agricultural sector, which showed growth of 19,6% in the second quarter after a 17,2% increase in the first, is showing no signs of financial distress, says Alliance Group chief executive, Rael Levitt. “The booming agricultural and fishing industries are in direct contrast to many industries which are struggling with the higher debt, retail cool-off and inflationary pressures,” said A ccording to Levitt, Alliance has been picking up financial distress in many industries such as transportation, residential real estate, small clothing retail, car dealerships and clothing and textile manufacture. “Liquidations and voluntary closures of businesses in certain financially strained sectors have grown strongly in the second quarter, yet there have been almost no liquidations of farmers or allied agricultural services,” he said.
According to Alliance, certain agricultural markets such as wheat and maize are seeing prices levels that haven’t been encountered in 10 or 20 years. Biofuel production in particular has boosted grain prices and the growing consumption in India and China is having a huge knock-on effect on local prices. Export maize is doing well and this year there was a bumper crop with oilseeds such as soya beans also enjoying great success. Meat prices are high and despite an increase in feed costs, most cattle farmers are doing well with a slight drop-off in demand due to consumers feeling the pinch and cutting back on certain luxuries. Levitt said broiler chickens are also experiencing strong demand despite the fact that large broilers were in immense financial distress not too long ago, with several high-profile businesses going to the wall.
The fruit industry, particularly apples and table grapes which went through major financial distress in 2001 and 2002, is also doing extremely well and exporters in the Northern Cape are seeing a surge in land values. “Apple orchards which we couldn’t sell for R60 000/ha three years ago are now actively trading at over R200 000/ha.” “The good times in the agricultural sector are obviously having a positive effect on land prices and our agricultural auctions across the country are attaining record prices,” Levitt said, adding that his group is seeing a surge in interest and buying activity from wealthy buyers in the Middle East, and particularly of large commercial farms. “The introduction of these international buyers for local farms is a relatively new phenomenon which we see growing aggressively over the next five years.”
According to Levitt the only sector experiencing financial distress is wine farms in the Western Cape. “The wine industry is facing the international problem of over-supply and typical red wine production areas in the Boland are showing some signs of distress. We may see farms in Paarl, Stellenbosch, Riebeek-Kasteel and Malmesbury coming onto the distressed market,” said Levitt. Land claims issues will also have an impact on land values but at this stage the concerns seem to be largely concentrated around KwaZulu-Natal’s sugarcane markets.
Levitt said one must remember that in the last downturn cycle it was the agricultural sector that suffered the brunt of high interest rates and a general slowdown. “In 1999, there were so many liquidations of large farming concerns that land prices dropped sharply and farm after farm was auctioned off to recoup debts,” said Levitt. “But climatically and price-wise things are very favourable for farmers now and despite increased input costs, farmers in many sectors are having a great run.” – Staff reporter