South African Farmers Urge State to Bail Out Agriculture Lender

(Bloomberg) --

South Africa’s government has been urged to rescue its state-owned agricultural bank to avoid the risk of farmers being starved of access to financing and threatening food security.

Failure by the Land and Agricultural Development Bank of South Africa to lend to farmers and agri-processing businesses would have a “massive impact” on local food supplies, said Omri Van Zyl, the executive director for AgriSA, the nation’s largest farmers group. The Land Bank is seeking waivers from its lenders after missing a loan repayment, triggering a default event.

The woes at the country’s biggest lender to the agricultural industry come as President Cyril Ramaphosa’s administration grapples with what to do with its loss-making companies, including a bankrupt national airline planning to sack all its workers. The central bank expects the economy to shrink 6.1% amid a five-week lockdown to curb the coronavirus.

“The government needs to bail out the Land Bank and they need to take the food system seriously,”’ Van Zyl said. “It’s a massive crisis. The Land Bank funds more than 30% of the sector. Farmers can’t absorb additional costs of raising capital.”

The Land Bank may have to postpone other payments, the Pretoria-based lender said in a statement on Monday. Its cash position deteriorated after a downgrade in its credit rating. The downgrade resulted in some lenders limiting their exposure to the Land Bank at a time it needed to make large provisions to its own customers, it said.

“The fiscus is quite strained currently, but if interventions are made early and quickly, we do not foresee this being a major blow to the government’s financial position,” said Chantal Marx, head of equity research at FNB Wealth and Investments. “A liquidity issue points to an inability to lend, which could have a short term impact on financing, which may impact food security depending on how long the liquidity constraint persists.”

Read more: South Africa’s Budget Deficit to Balloon in Virus Fight: Chart

The government could look toward other public funding institutions like the Development Bank of Southern Africa, Industrial Development Corp., National Development Agency, she said, or appeal to commercial banks.

Ramaphosa is due to outline stimulus and relief measures related to Covid-19 and its impact on the economy later on Tuesday.

South Africa has traditionally been Africa’s top corn producer, but output has fluctuated in the past few years due to droughts. The lack of sufficient rains has also hurt rural communities, where a large part of the population relies on subsistence farming.

“It’s a red flag,” AgriSA’s Van Zyl said. “The government needs to invest in the food system now more than ever before. Smart governments are doing exactly that.”

©2020 Bloomberg L.P.

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