MegaBanner-Right

MegaBanner-Left

LeaderBoad-Right

LeaderBoard-Left

Home » Industry News » Agriculture » No respite for farmers as debt servicing costs escalate following another 50-basis points hike

No respite for farmers as debt servicing costs escalate following another 50-basis points hike

Comment by Paul Makube, Senior Agricultural Economist at FNB Agri-Business

The South African Reserve Bank (SARB) announced another 50-basis points interest rate hike thus bringing the repurchase rate to over a decade high of 8.25%. The prime rate thus moved higher by 0.50% effective from the 26th of May 2023.

Unrepentant inflationary pressures emanating from elevated geopolitical tensions (which complicates the rand outlook), the unending energy woes with seemingly no near-term solution, and logistics constraints raising cost levels, forced the SARB to maintain the firmer hand on rates.

The SARB’s growth outlook has been nudged downwards to 0.2% this year dragged by energy and logistical constraints. However, subsequent years sees a modest growth of 1% spurred renewed investment in energy supply and the improved global environment.

Elevated inflation expectations muddy the interest rates outlook, thus higher for longer. For farmers, mounting debt servicing costs means profit margins will thin out further and slowing expansion plans. For example, agriculture machinery sales have slowed in 2023 as farmers proceed cautiously on their replacements and new additions.

Although yields are currently good with the May 2023 production estimates upgraded by 2% and 4% from April and the previous season respectively, commodity prices are now off the boil following two years of a strong rally.

Additionally, the heightened probabilities of El Niño weather pattern for the new summer crop season ahead may prompt farmers to be very cautious with financial commitments.

To enquire about Cape Business News' digital marketing options please contact sales@cbn.co.za

Related articles

Agriculture on the up, despite challenges

AGRICULTURE in the Western Cape has enjoyed the “best winter rain season for years”, setting the sector on an excellent footing for successful crops...

SA’s agri sector could create a million more jobs

SOUTH Africa’s agricultural sector has more than doubled in value and volume since 1994, thanks to improved productivity. Yet the sector, which employs about...

MUST READ

Woolies ESD programme backs 32 businesses with R391.7m in support in...

By Larry Claasen Woolworths’s Enterprise and Supplier Development (ESD) programme has given emerging businesses a much-needed boost by providing “procurement opportunities” to the value of...

RECOMMENDED

Cape Business News
Follow us on Social Media