If you were a South African commercial farmer, would you be planting your crop this year? Considering the rhetoric around land reform and the strong possibility of the drought-related El-Nino weather phenomenon making an unwelcome return, you might think you would need your head read to pour money into the ground.
Fortunately, farmers are consummate risk takers. There is absolutely no certainty that you will earn back the R7,500 per hectare it costs a commercial farmer to plant maize. With current prices around R2,000/ton you would need a yield of four tons a hectare just to break even. Four tons a hectare in dryland agriculture in the country’s traditional maize growing areas is regarded as a good, and by no means guaranteed yield. For farmers wondering if their title deeds provide them with any degree of legal certainty on ownership into the future, it adds further worry.
After years of drought, few can afford to leave land fallow. President Cyril Ramaphosa has also made it clear that when the time comes, it will be fallow land that is likely to be targeted for distribution. So farmers are essentially forced to plant, whether they are comfortable with the land situation or not.
AECI, which produces fertilizer and agricultural chemicals, says there is a great deal of negativity amongst farmers, but that is more to do with the depressed maize price which has experienced its longest period of international pricing parity. The main reason for that is global oversupply - while input costs on everything from fuel, seed, fertilizer, insurance and labour continue to rise.
That leads to a narrowing of the trading margin and, depending on yields, either making a profit or a loss in a season.
“The dilemma the farmer is faced with is that they simply have to plant no matter what the maize price is in order to at least cover their fixed costs. We have seen a swing to soya and sunflower to counter this to some extent. The potential effect of this is for the farmer to cut back on all inputs to the bare minimum and forego yield,” says AECI CEO Mark Dytor. “My sense is that farmers are pragmatic and sensible on issues around land reform, but this is a test of that logic.”
There are encouraging signals emanating from senior figures in the ANC on land security and the president has been at pains to regularly point out that productive large-scale agriculture has no need for concern. That message was well received this week by a delegation from Agri SA. The organisation, which represents the interests of commercial agriculture, has held two separate meetings with ANC leaders this week. One meeting in Pretoria with ANC deputy president David Mabuza and treasurer-general Paul Mashatile, the other with the president in Cape Town. Talks were described as “progressive.”
Agri SA says it is not seeing a brake on plans to plant: “One concern is that the price of land has taken a beating – as a consequence the collateral that we lend against comes at risk and that creates a much bigger risk for food security than many other things,” says Omri van Zyl, CEO of AgriSA.
They will not knowingly throw good money after bad for an individual or a sector that poses too high a risk.
No bank CEO I have spoken to in recent weeks has any plans at all to cut back on funding to agriculture. To do so would spell disaster for commercial farmers, many of whom borrow money at the start of the season to literally plough it into the ground to generate a decent enough return to make the process financially worthwhile.
If anything, the Land Bank is looking to expand its book this year, especially when it comes to funding the growth and expansion of black agriculturalists on a commercial basis.
But time is running out ahead of elections where the ANC’s rivals, particularly the EFF, will seek to make political capital out of the governing party’s apparent flip-flopping on the land issue. The Democratic Alliance is likely to position itself to the right of the land debate and focus on the rights of current owners of land. It’s about as divisive an issue as there could be in South Africa right now. The implications of this uncertainty go way beyond land. The rhetoric clouding the ANC land reform agenda is making the job of Ramaphosa’s investment envoys nigh impossible.
His political imperative to keep his party cohesive means some obfuscation around the land issue is necessary, for fear that he may fall foul of factions seeking to undermine his leadership within his own party, but it doesn’t do the job of generating the growth to create the jobs that contribute to a sustainable future.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.