Financially, things are not looking too bright on the agricultural horizon.

Land Bank has warned debt holders of R50 billion that it is in danger of defaulting. The repayments in question are for its revolving credit facility, Land Bank cited a current “liquidity shortfall” as the problem. Agri SA encouraged the government to intervene to resolve this looming economic crisis for agriculture.

This followed on the Moody’s credit downgrade of the bank on the 21st of January which already highlighted this bank as “riskier”, making access to finance more challenging and expensive for the bank.

Land Bank is a significant player in the agricultural sector, with a strong market share of 29% of South Africa’s agricultural debt. The bank is an important line of credit for agribusinesses to finance the buy-in of harvests at silos and for production credit which the bank channels to farmers via agribusinesses. Agriculture is cyclical as many farmers do not have a fixed or regular income, rather, they earn the bulk of their income in a short period (varies based on commodity) when their produce is harvested.

Access to credit is essential to meet cash flow needs (for example like paying for inputs and labour) throughout the year, with farmers typically settling their debt when their produce is harvested. It is quite a risky business if some unfortunate, unforeseen disaster or another prevents a farmer from producing their crop and they are unable to pay their debt.

The bank is one of a few state-owned companies that remain profitable, despite an increase in defaulting loans ( because of drought challenges among others), recording a profit of R181 million in 2019. The bank is mandated to fulfill an important developmental mandate, according to Agri SA. However, the bank is mainly depended on accessing funding in financial markets based on commercial terms.

Agri SA’s Economics and Trade Centre of Excellence division however has the idea there seems to be a misalignment between the shareholder’s (Government/National Treasury) expectations of the bank and the level and type of funding and support that is given to the bank.

Whilst failing State-Owned Enterprises (SOE’s) has already received consecutive bailouts, the Land Bank is much more deserving of government support, according to Agri SA. Agri SA said that agriculture is vitally important to South Africa’s food security and the broader economy. The sector is also posed and committed to support post-COVID-19 economic recovery.

The government must show the necessary leadership and vision to urgently support the agricultural sector to resolve the Land Bank’s current default crisis, Agri SA stated. This can help to position the Land Bank and agriculture for growth that will in the end assist to support a broader economic recovery. Agri SA therefore encouraged the Land Bank Board and National Treasury to constructively engage with Land Bank clients and agricultural lenders to mitigate this systemic risk.



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