South Africa: Elevated Farm Debt Levels in Times of Covid-19

opinion

South Africa's farming sector is heavily in debt. As of 2018, the total farm debt was at a record R168bn. About 60% of the debt is with the commercial banks, 29% with the Land Bank and the rest spread between agricultural co-operatives, private persons and other institutions. The escalation of debt, particularly in more recent years, was because of both the expansion in area farmed, specifically in horticulture and to some extent, the financial pressure brought by frequent droughts.

The 2019/20 production season follows two seasons, which were hampered by drought in some areas, negatively affecting farmers' finances. In ordinary times, the expected large output in both field crops and horticulture this season would be part of the recovery phase. But we doubt if that will be the case in the face of Covid-19, which has disrupted supply chains, leading to lower global demand. South Africa's agricultural sector is export-oriented. In value terms, roughly half of the products the country produces are destined for export markets.

Locally, some agricultural industries' performance is interlinked to some sectors which are hard hit by Covid-19. A case in point is the wine industry, whose performance is somewhat influenced by tourism. The decline in...

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