The agriculture sector has outperformed all other sectors in the growth of its contribution to the gross domestic product (GDP) this year. In the first quarter of this year, the sector increased by 27.8%, but later the number was revised to 28.6% by Statistics South Africa. However, historic disadvantages still plague the sector, with farmers (with or without land) battling to access funding to stay afloat or simply purchase vital machinery to plough.
In the second quarter of this year, the sector was the only one that grew. It expanded by 15.1% and contributed 0.3% to GDP.
Although agriculture’s contribution to GDP has been historically low and is estimated at about 2.5%, its real contribution to GDP is closer to 15% if one considers the forward and backward links with the rest of the economy.
Those who have the land
However, farmers such as Muzi Mtshali want to grow the sector and produce enough to contribute substantially to the country’s GDP. Sitting upright in his kitchen, the 57-year-old farmer, wearing his black fedora, recounts how 400 hectares of land in Thuthukani in Dundee, Kwa-Zulu-Natal lay bare and have not produced a harvest since he received the land in 2004.
Mtshali has been farming all his life. His family has been on the farm since 1976 when he was a boy. The farm was functional, crops were planted and they had livestock. But that was in apartheid South Africa and things changed for his family in 1983 when a white man took everything from them, ordering them to stop farming — and the land did not belong to them any more.
In 2004, Mtshali and seven other families received the land back, but it ended there. Although Mtshali owns the land, he cannot farm because he doesn’t have capital. He said the families were given the land back, the government gave them a few goats. Most of them are now dead.
Reggie Ngcobo, the spokesperson for the department of agriculture, land reform and rural development, said land reform and distribution exceeded the speed at which post-settlement support could be provided.
“Currently, all land reform farms are being assessed and those never supported with committed farmers will be supported. The farmer must approach land reform offices in provinces to confirm the planned assessments,” Ngcobo said.
But Mtshali’s problem of funding is common among farmers, whether or not they have land.
Another farmer who has battled is Sifiso Dlalisa. In 2004, after completing his studies in agricultural science, Dlalisa borrowed R27 000 from the Land Bank. He wanted to start a vegetable farm on communal land. However, for two years, Dlalisa made losses because he could not afford the equipment and he needed more funding. He then quit his job as an extension officer at the department of agriculture, so he could use his pension fund to finance his farm. Dlalisa equates that venture to “ploughing water”. He had to close his farm after two years.
Output in this sector has varied because of climate conditions and other factors, but emerging farmers in KwaZulu-Natal want the government to do more to ensure the industry thrives.
Dlalisa said farmers needed money and skills transfer. After closing his farm, he has tried to approach several institutions, such as Umsobomvu Youth Fund, for funding, but his efforts yielded nothing.
“The funding is not there. Maybe it’s there if you are a comrade, but not if you are an ordinary person like me,” he said.
The funding game
Despite stories such as Dlalisa’s, lending institutions claim that they are lending money to applicants who qualify. The Industrial Development Corporation said that its funding for agriculture stood at R5-billion.
The department of agriculture, land reform and rural development said a total of 205 loans have been given to farmers from April to August though its micro agricultural financial institutions of South Africa scheme. However, the scheme’s mandate is to provide financial services to facilitate the development of micro and small businesses and to enable producers and entrepreneurs to develop into larger businesses, sidelining farmers who do not meet these criteria.
Sydney Soundy, an executive manager of strategy and communications at the Land Bank — which failed to respond to questions from the Mail & Guardian — told Parliament last year that the bank has had to expand its loan book through loans to corporate institutions to make it grow, and those institutions were white-owned. This formed part of a briefing to the portfolio committee on agriculture, land reform and rural development, during which MPs asked questions about why the bank’s loan book did not sufficiently represent emerging farmers.
According to the bank’s Maize Industry Insight report this year, as of March, its exposure in grains and the oil-seed industry was about 66.2%, or R29.9-billion of the bank’s total loan book of just more than R45.2-billion. The highest exposure for the Land Bank is through its commercial development and business banking division, which sits at R23.2-billion.
Nkanyiso Gumede, a researcher at the Institute for Poverty, Land and Agrarian Studies at the University of the Western Cape, said that access to finance is biased towards elite farmers who have collateral.
“In the land reform context, agribusiness and strategic partners capture government funding with very little benefits for land reform beneficiaries,” he said.
Paul Makube, agricultural economist at FNB, said the gap between the farmers who can access funding and those who can’t is likely to widen.
He added that most loans in this sector are administered by commercial banks. According to recent data from the then department of agriculture, forestry and fisheries, commercial banks contribute 71% towards agricultural financing in South Africa, with the Land Bank accounting for the remaining 29%.
Makube said banks administer the biggest share of the loans and that commercial banks offer a variety of products, including lending, transactional accounts, credit cards, overdrafts and insurance, whereas the Land Bank is confined to lending.
Most banks administered loans using basic lending principles: looking at the farmer’s business plan, financial history, management profile, cash repayment abilities and collateral in the form of agricultural land. The latter is the biggest stumbling block to accessing finance.
Last week, the M&G attended a For Farmers For East (FFE) shareholders meeting in Dundee. The members of the group, which was established last year, collaborated to raise funding for each other. FFE comprises both black and white farmers — the latter assume the role of contributing financially and providing mentorship.
Daan du Plessis, FFE’s operations manager, said farming is high risk at the moment because of the unpredictable weather, but one of their biggest concerns is that collateral is a big problem for black farmers.
“They will never have collateral because they don’t own the land,” he said. Land given to farmers by the government does not work as collateral, because farmers are just leasing it, according to Gumede.
This puts farmers who don’t own their land at a disadvantage, whereas other commercial farmers can borrow money because a portion of their land is already paid for.
Jabulile Kunene, who farms maize at Halifax farm in Dundee, explained that they are asking the government to put up collateral because most of them are starting from nothing. She also suggested that the government subsidise input costs. “Government must meet us halfway,” she said.
The FFE is trying to solve some of the funding issues with the help of Tyala Impact Fund, a subsidiary of Kagiso Trust. The fund has contributed R7.5-million towards the group, which was used for surety on a first loss basis. Other funding was received from commercial banks.
Mohlolo Selala, head of socioeconomic development at Kagiso, said the trust serve the new era farmers because “the commercial banks only fund agriculture projects based on senior debt principles, which require a minimum of 40% equity”.
“Due to lack of sufficient collateral, the interest rates offered by the commercial banks are much higher than developmental interest rates, which causes a new era farmer having to repay debt with no spare cash flow for day-to-day living expenses”, Selala said.
Fortunately, FFE was able to sell more than 25 000 tons of its grain harvest to Vietnam and Taiwan because it is part of the export trading group, adding to South Africa’s export numbers.