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The long shadow of South Africa’s farm debt

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Source: Wandile Sihlobo, Agricultural Economics Today, 25 October 2020, photo credit: BusinessTech

South Africa’s 2020 large agricultural output, coupled with higher commodity prices which were precipitated by the weaker domestic currency, further linked with growing global demand, improved farmers’ finances somewhat. The benefits of this improvement were also observed through robust agricultural machinery sales, with the tractors sales for the first nine months of this year up slightly from the corresponding period in 2019.

Yet, the challenge of growing farm debt in the sector persists as it will not be solved by one good harvest like the one, we recently recorded, which was preceded by years of poor output in various provinces of the country.

In 2019, South Africa’s agricultural debt was at a record R187 billion, which was a nearly three-fold increase since 2010, according to data from the Department of Agriculture, Land Reform and Rural Development. About 29% of this farm debt was held by the Land Bank, 61% by the commercial banks, and the balance spread between agricultural cooperatives, 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, which have limited agricultural output on various farms over the recent past.
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