Neels Blom Writer at large
Picture: ISTOCK
Picture: ISTOCK

The Land Bank intends tripling to R15bn the value of its lending to emerging farmers within the next three to four years, says Litha Magingxa, the state-owned institution’s head of agricultural economics.

This will translate to 30% of its total lending of R45bn.

Over the past two years, the bank has increased its lending to emerging farmers and agricultural development enterprises to about R5bn from R2.5bn.

Magingxa spoke at an information session at the Nampo harvest festival, SA’s biggest agricultural event held annually at Bothaville in the Free State. He was responding to long-standing criticism of the bank for not doing enough to support the transformation of agriculture.

Business Day reported earlier that a study found that emerging farmers did not have ready access to off-farm capital and needed state assistance for their farms to produce, compete and have a degree of longevity.

Despite agriculture’s relatively small share (2.4%) of total GDP, primary agriculture is an important sector in the economy and a substantial employer, contributing about 5% of jobs with associated multiplier effects, especially in rural areas. It is a major foreign currency earner.

About 60% of agricultural output is used as intermediate inputs by various sectors of the economy, which indicates the importance of the sector as an engine for economic growth.

"The bank’s mandate needs to be understood," said Magingxa. "First, it is obliged to finance agricultural development while maintaining food security, economic growth and the transformation of the agricultural sector. This includes environmental sustainability and job creation.

"Second, the bank receives no funding from the state, though the state does guarantee its loans. That means it has to carry the risk associated with the unique challenges posed by SA’s emerging farming sector."

Magingxa acknowledged that it was a high-risk endeavour. Typically, the bank’s interest rate is 2.5 percentage points below prime, which is attractive to borrowers but risky to lenders. He admitted to the challenges of the speed of its delivery and maintaining the quality of its loan book. These are complicated by difficulties in market access for its clients and their level of management skills.

The bank overcomes this by, among other strategies, seeking funding on the open market and by carefully selecting loan candidates who qualify for interest rates subsidised by the bank.

Sydney Soundy, the bank’s communications manager, said it was critically important for applicants to have access to land. "Without land, farming cannot happen. We cannot consider granting a loan before an aspirant farmer is on the land. Next, borrowers must have a sound business case. Only then would it consider funding."