Published On: Wed, Apr 4th, 2018

Rate cut brings relief to recovering agro sector

Tanzania agro expo

JOHANNESBURG, (CAJ News) – THE interest rate cut by the South African Reserve Bank (SARB) is a welcome relief to the country’s agriculture sector, which is emerging from successive droughts.

SARB recently slashed its benchmark repo rate by 25 basis points to 6,5 percent, in line with market expectations.

The apex bank based its decision on lower inflation expectations.

Experts said the reduced cost of borrowing would incentivize farmers to review their investment decisions in terms of purchasing new machinery, equipment or restart deferred projects such as expansion of orchards.

Paul Makube, Senior Agricultural Economist at First National Bank (FNB) Business, said this would also improve the profitability of enterprises with high capital outlays such as in poultry, feedlots and pork.

“The combination of falling inflation and lower interest rates positively affects the expenditure on farm inputs in terms of reduced production costs, thus improving profit margins,” Makube said.

He pointed out agriculture is a capital intensive industry with a national agriculture debt in access of R160 million (US13,4 million).

“The reduction of the interest rate by 25 basis points is therefore a welcome relief to farmers and producers who are still recovering from the aftermath of the drought of two years ago,” Makube said.

He said during a drought, producers had less or nothing to take to the market and derive some income from.

However, they still had to carry the cost of holding farm assets and are thus unable to meet their debt repayment obligations.

“It may lead to further indebtedness as they are forced to borrow more to maintain their living and operational requirements,” the economist said.

Meanwhile, South African maize prices opened the week significantly higher, finding support from a weaker rand.

Grain SA said the local maize prices were beginning to ease into prospects for the new season, although current marketing season ending stocks were likely to place continued pressure on prices.

White and yellow maize spot opened the week higher by 2,4 percent and 2,7 percent at R1 926 and R2 014, respectively.

South Africa is the region’s leading producer of the staple grain.

It exports to most neighbouring countries bearing the brunt of the worst drought in decades.
– CAJ News

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