Picture: DAILY DISPATCH
Picture: DAILY DISPATCH

The government has been urged to rescue the 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 SA 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 loss-making companies, including the bankrupt SAA planning to sack all its workers.

The Reserve 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 it needs 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’s cash position deteriorated after a downgrade in its credit rating, which resulted in some lenders limiting their exposure to the 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 affect food security, depending on how long the liquidity constraint persists.”

The government could look towards other public funding institutions, such as the Development Bank of Southern Africa, Industrial Development Corporation (IDC), National Development Agency, she said, or appeal to commercial banks.

SA 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,” Van Zyl said. “The government needs to invest in the food system now more than ever before. Smart governments are doing exactly that.”

Bloomberg

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