Standard Bank’s new head of Agribusiness

As trends in agriculture change, so too do issues surrounding agricultural finance. Lindi van Rooyen spoke to the newly appointed head of Standard Bank Agribusiness, Nico Groenewald, about working around tenure security and the complexity of financing emerging farmers.

What is your background?
My family has always been involved in agriculture and I studied agricultural economics at the University of Pretoria. I also farm part-time in Mpumalanga with cattle and sheep. I joined Standard Bank in 1989, but left in 1990 to work for an agricultural company. I returned to the bank in 1997. Although agriculture is a passion, there’s still a lot I want to achieve in banking before I can consider farming full-time.

What are the biggest challenges you anticipate facing as head of agribusiness?
Within the context of Standard Bank’s Business Bank, our agribusiness segment has done very well during the past four years, so the challenge will be to maintain that momentum. We therefore need to ensure that we have a good supply of young up-and-coming professionals who will be assets to Standard Bank’s agribusiness division, and will be able to support our clients.

But it’s important to get the timing right, so that we can place the right person on the right track at the right time.
We also need to maintain the balancing act of servicing all our clients within the comprehensive mix of sub-segments, whether they are small farmers or agribusinesses.

A big issue facing developing farmers, is securing financing. Are they unbankable?

We have a sub-section within Standard Bank Agribusiness that specifically looks at financing developing farmers. Through this department, we partner with experts in various industries to provide them with technical know-how. Banking developing farmers requires a different approach because, in all likelihood, they are in the early stages of their business’s life cycle, and just entering the commercial farming environment. This means that the farmer often has limited balance sheet depth, lacks adequate collateral and doesn’t always have the records to back them up.

Providing credit assistance is dependent on an understanding of the risk and how it can be appropriately mitigated and managed. A one-size-fits-all approach does not work and every farmer is looked at individually. What is important is whether the farmer has a well-defined plan for his farm. This will form the basis of determining the venture’s viability and sustainability. The bank can assist with a framework for such a plan through its agricultural advisory network and BizConnect website.

Having a proper plan in place is probably the most important criterion for financing, but needs to be underpinned by good management based on how these other aspects have been addressed. Only then do we consider tangible security and so forth. We also don’t necessarily believe that land ownership is essential for providing a farmer with production financing. Access to land can also be secured by means of rental agreements, including government land. But the issues of ownership and collateral form only part of the broader criteria we consider.

Read: Farmers focussing on precision farming and mechanisation – Standard Bank

To mitigate some of the production risks, developing farmers stand a better chance of obtaining finance if they consider ring-fencing the production and sale of their products through mentorship agreements. This will be required in cases where initial production skills are lacking and oversight is deemed to be a requirement. They can also partner with a suitable buyer of their products by way of a delivery contract, in which the buyer undertakes to buy the farmer’s products at a specified price.

Partnerships with input suppliers and service providers are further options. Standard Bank has designed a specific product and process to consider these kinds of propositions.There are many organisations, such as Grain SA, that are involved in mentoring farmers and the initiatives of these organised bodies make it easier for us to finance these farmers. Another option for small farmers is to pool their resources and knowledge in a co-operative format, to speed up the process of reaching economies of scale and have greater negotiating power.

Has land reform had an influence on the risk of financing farmers?
South Africa is a well-recognised democracy supported by a sound Constitution and an independent judiciary, and land reform takes place within this framework. This currently allows us to focus on other non-financial risks to farming, such as climatic variability, market access, infrastructural support, and changes and requirements around end-consumer behaviour. These factors all have a direct impact on the sustainability of the business. The decline in the number of farmers is a global trend, as is the increase in the size of production units, so we don’t attribute this trend locally to land reform putting farmers off their land.

Have you seen an increase in investment on farms?
The department of agriculture released statistics indicating that the value of capital assets in agriculture increased by 8,2% year-on-year. We’ve also seen an increase in investment, mainly due to mechanisation and investments in the value chain.
Local farmers are following international trends in terms of mechanisation. If they want to stay ahead of the game, replacing old technology with new innovation – and often on a larger scale – is the way to go.

We’ve also seen specific investments up and down the value chain. Farmers and agribusiness are adding value to their produce by erecting processing facilities and enhancing logistical solutions, not just on the output side, but also on the input side, such as with fertiliser plants. I firmly believe that there’s a good future for agriculture in sub-Saharan Africa. Food is a fundamental requirement and our farmers can provide it. Every South African farmer produces food for approximately 1 500 people, and with Africa’s population set to grow significantly, there’s reason for investment.

If farmers position themselves cleverly in the market, they will experience more growth than obstacles.

Email Nico Groenewald at [email protected].