How did the Land Bank recapture share of the agricultural funding market?
We’ve captured market share through an increase in our loan book since the 2008/2009 financial year. In 2009 our market share was about 22% and, as at December 2013, we had grown it to approximately 31%. Most of the growth was as a result of our tactical approach, especially in the corporate and business banking segment, which targeted strategic clients with high funding potential. Our healthy financial outlook enables us to attract other potential investors and multilateral funders at relatively competitive rates. This presents the bank with an opportunity to competitively increase its investment in the sector.
How is the Land Bank implementing its development mandate?
The deputy minister of finance said during the launch of our annual results that the Land Bank was expected to be sustainable while delivering on its development mandate. In the 2012 financial year, we established the Retail Emerging Market (REM) Division with the sole purpose of funding emerging farmers at preferential interest rates, because this market does not have the traditional security available to commercial farmers.
The bank also funds this market from commercial book profits, dividends (from its wholly-owned subsidiary, Land Bank Insurance Service), government grant funding, and customised funding from multilateral financial institutions. We also partner with commercial farmers to provide non-financial assistance such as technical support and market access, which are important factors for the success of emerging farmers.
Is the bank regaining commercial farmers as clients?
Yes it is. Our 2013/2014 annual results show that we’ve managed to grow our book by 24% against a target of 15%. This growth was contributed largely by commercial farmers, which is evidence that they’re comfortable about doing business with the Land Bank. We appreciate the fact that they are supporting us and we hope to strengthen this partnership as we continue to grow our business. Some of the clients we lost in the past have also come back and we see this trend continuing as we keep improving our service offering to our clients.
How is the Land Bank supporting farmers on communal land who do not have the security of tenure?
This is very challenging for many banks. The Land Bank does not have extensive experience in this area. However, we’re reviewing our approach in collaboration with relevant stakeholders to determine how best to assist these communities in a sustainable manner.
How does the Land Bank differ from commercial banks in terms of risk tolerance when deciding at which rate to lend to farmers?
The bank is a development finance institution and is wholly-owned by government. Thus, one of its mandates is to finance development. The bank’s risk appetite is informed by its mandate and the sustainability of projects that it funds. We’re also guided by the Land and Agricultural Development Bank Act (2002) and the Land Bank Act.
How has the agriculture sector performed so far in the 2014/2015 season?
The agriculture sector’s performance showed positive improvement for the period up to December 2013, compared with the previous year. The gross value of agricultural production, which is the total production valued at average prices, for 2013, was estimated at R187,7 billion. This was an increase of 8,5 % on the previous year’s R173 billion.
The total farming debt increased 15,5 % to R102 billion, while the bank’s exposure grew by 24,6%, hence the growth of our market share from 30% to 31%. Whilst the bank has performed positively in general, some parts of the country experienced adverse weather, such as drought. The effect of the drought during the previous season resulted in an increased need to support maize farmers because of tight grain supplies. This followed a drop from the levels seen earlier in the season, on the back of favourable crop forecasts for the 2014 season.
Wheat prices, however, remain bullish, due to the production disruptions in the Ukraine as a result of political unrest.
Our future relies on the success of the farmers and agribusiness we support, which in turn depends largely on their ability to adapt to the effects of climate change. With this in mind, we’ve established the Environmental and Social Sustainability Programme (ESS programme), which encourages the farming community to farm in a manner that protects the environment and promotes sustainable socio-economic development.
The launch of the ESS programme coincided with the bank becoming a member of the UN Environment Programme Finance Initiative (UNEP-FI). This is a partnership between the financial services sector and policymakers to promote sustainable financing.
What would the bank like to achieve this year?
We would like to increase our level of development lending. As such, we’ve set a development target of R1 billion for the current financial year and have managed to raise R500 million in funding from the African Development Bank of Southern Africa, as well as funding from government to finance development farmers. Despite funding constraints, we’re quite confident that we will meet this development target.
We also plan to improve our involvement in land reform initiatives and believe we can make a big contribution in this area by leveraging support from our strategic clients and stakeholders.The Land Bank has significant exposure in both the livestock and grain sectors, which are monitored on a regular basis through our credit risk monitoring committee. Some of our corporate clients have reported subdued financial performance as a result of adverse circumstances in these sectors. However, this development did not result in non-performing loans (NPMs), as the affected clients had well-diversified
In our retail commercial space, the number of applications for poultry production was also less than aggressive, indicating that the industry is facing challenges. However, the bank still believes that there will be improvement in this market in future. In the 2013/2014 financial year, the bank continued working towards supporting and providing assistance to emerging farmers.
We believe the Land Bank has an important role to play in helping to grow the number of sustainable emerging farmers who
are entering the commercial space, while continuing to support commercial farmers, thereby ensuring they remain competitive. Notwithstanding the challenges faced by the agricultural industry, the Land Bank believes South Africa has the potential to become self-sustainable in terms of food production.
Phone the Land Bank’s acting CEO, Lindiwe Mdlalose, on 012 686 0590 or email her at [email protected].
This article was originally published in the 5 September 2014 issue of Farmer’s Weekly.