- 01 June 2020
According to AgriSA’s Omri van Zyl “We’re talking about food security and social stability. There’s a lot of stu that coincides with this.” The Land Bank, which has equity of R5bn and liabilities of about R45bn, defaulted on some of its debt last month, triggering a cross-default on bonds worth R50bn. Lenders refused to roll over maturing loans.
It funds more than 30% of SA’s farming sector with money it borrows on the open market at commercial rates. Its credit rating was already in junk territory when it was downgraded to junk by Moody’s in January, so it has had to pay more for these loans, making them less aordable to the farmers who depend on them to pay their production costs.
It has sent an SOS to the Treasury for a R22bn bailout, which Van Zyl doesn’t see happening. “Given the Covid-19 challenge we have and all the other state-owned enterprises [SOEs] that are really struggling, government will now have to draw a line in the sand and say we need to privatise the entities we can privatise as soon as possible and get them protable and running on well-oiled wheels.”
Without “drastic interventions”, the country’s food security will be compromised along with the commercial agriculture sector and associated value chains, he says.
“We’re talking 850,000 jobs in primary agriculture, in other words farmworkers. Add secondary agriculture — the processing guys like Tiger Brands, the mills, the guys who process the feed lots, the abattoirs etcetera — to that and you’re looking at 1.5million jobs.”
He says the government has not been serious enough about food security. “Because our agriculture system works very well and our food system works very well, people have been taking it for granted.”
He hopes the Land Bank crisis will be a wake-up call. “I think the smart move from government is to invest in agriculture.”
SA exports 25 agricultural commodities including wool, table grapes and citrus. Loss of demand because of the Covid crisis is being oset by a weaker rand, “so investing in our export sectors will be critical for us to get foreign revenue into this country and create jobs”, says Van Zyl.
AgriSA and its aliates have been working closely with the department of agriculture, land reform & rural development to prepare SA’s harbours to handle more exports. But all this, including the development of emerging farmers, which AgriSA has been heavily invested in, would be endangered by the collapse of the Land Bank and failure to put anything suitable in its place, he says.
“We desperately need a development nance institution, which the Land Bank has not been to date.”
Although it has a developmental mandate, it has had to borrow money on the open market, limiting the rates it can oer emerging farmers.
“Giving a farmer prime minus 1% is not a developmental option. You need at least prime minus 6% or 7% for these guys to start their business, get cash in the business and start growing it.” The Land Bank’s problems stem from an inherent contradiction in its business model, he says.
“On one hand you have a commercial bank imperative, on the other you’re trying to implement a developmental strategy on top of that. But the two don’t work together.” Making agriculture an investment priority would mean the creation of a development bank and injecting cheaper money into the sector by providing tax incentives for farmers who are expanding. “That would re up the agriculture sector a lot.”
Another imperative must be taking expropriation without compensation (EWC), which Moody’s cited among its concerns, o the table. Any appetite there may be to invest in the agriculture sector will diminish extremely quickly once something like that becomes law, he says.
“Just having it on the table contributes to the policy uncertainty in the whole investment environment in SA. Who wants to invest in a country where they can take your land without paying for it?”
He says it was one of the factors contributing to the Land Bank’s present crisis. “It weakened the Land Bank the moment it became policy.” One of the Land Bank’s credit terms is security of tenure, which is why it gives loans against
the title deeds of farms.
“The moment that there’s a potential default on that principle a lot of the lenders to the Land Bank will call up their debt because then the risk becomes too high for them,” says Van Zyl. Even if EWC is as yet not implemented, it is an “uncertainty creator. It denitely added to the risk prole of the Land Bank.”
This would have had an eect on property prices and the Land Bank’s ability to access loans at the best rates because it gears against the value of the land.
“If it falls by 30% it’s a major problem. “You can’t get a full production loan to plant your maize or whatever. We saw this happening after EWC was put on the table.” If it was ill-advised before the Covid lockdown devastated the economy, pursuing it now would be “complete lunacy”.
It would have a ripple eect on investor condence, “which we desperately need to get us out of junk status”, and would aect the agriculture industry’s potentially enormous contribution to the economy’s post-pandemic recovery.
“Suddenly all these issues we’ve been debating for so long have become frighteningly real and the time for debate is over,” says Van Zyl, an MBA graduate and former head of Deloitte’s African agribusiness unit.
“It’s time for decisive action.”
Van Zyl says that under former CEOs Phakamani Hadebe and Tshokolo Nchocho, the Land Bank was probably the best run and most protable SOE in the country. But after Nchocho left in December 2018 “the wheels came o. There’s not much time to sort it out. The next planting season is coming up in three months.” Because our agriculture system works very well and our food system works very well, people have been taking it for granted.