Rate hike not all doom and gloom for farmers

Johannesburg- The decision by the South African Reserve Bank to hike interest rates coupled with the wet weather would present difficulties for farmers, experts have warned.

The central bank on Thursday, in a widely expected move, increased the repo rate, which commercial banks pay to borrow money from the Reserve Bank by 0.25%.

This saw the prime lending rate, which banks use to lend to consumers,  also increase to 7.50%.

Paul Makube, a senior agricultural economist at FNB Agri-Business, said the increased cost of debt would hamper the sector’s bullish start to the year.

“Farmers face higher debt-serving costs from rising interest rates,  which will erode profit margins in the sector in an environment of higher input costs emanating from the massive upswing in fuel, fertilizer, pesticides, and herbicides experienced during the current season.

“The past record low-interest rates afforded farmers an opportunity to do the necessary replacement and replenishment of machinery and equipment, which saw the total tractor and combine harvester sales for 2021 lifting sharply by 26.4% and 44.9% respectively year-on-year,” he said.

Makube further cautioned the wet weather conditions flooded crops, causing damages and delaying planting. However, he said it was not all doom and gloom for the sector.

“Commodity prices remain relatively strong and should somewhat help offset the cost pressures on the sector. We hope for a few weeks of sunshine to allow the crops to recover and deliver another good harvest, paving the way for a better agriculture season and help limit food inflation pressures.”

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