KEEP UP TO DATE WITH ALL THE IMPORTANT COVID-19 INFORMATIONCOVID-19 RESOURCE PORTAL
FANews
FANews
RELATED CATEGORIES
Category Economy
SUB CATEGORIES General |  Budget 2017 |  Budget 2018 |  Budget 2019 |  Budget 2020 |  Budget 2021 | 

Looming agriculture profit margin pressures ahead as the rate hike cycle resumes

19 November 2021 Paul Makube, Senior Agricultural Economist at FNB Agribusiness
Paul Makube, Senior Agricultural Economist at FNB Agribusiness

Paul Makube, Senior Agricultural Economist at FNB Agribusiness

The South African Reserve Bank (SARB) followed on its previous warnings that it would not hesitate to hike rates if the inflation trajectory carried on the current path to the upside. The SARB raised its repo rate by 0.25% to 3.75% effective from the 19th of November 2021. The bad news is that the SARB’s projections indicate further increases in the next three years to 2024 which is cumulatively 300 basis points.

Although the rate hike shows signs of domestic economic recovery due to a combination of improved household consumption expenditure, resilient exports, and greater return to economic activity after previous lockdowns, the outcomes indicate tough times for farmers in the months ahead.

Amid mounting cost pressures emanating from massive upswing in fuel, fertilizer, pesticides, and herbicides prices, higher debt serving costs from rising interest rates will trim profit margins in the sector despite a fantastic outlook for the season ahead. The record low interest environment over the past year provided a breather for farmers and allowed them to do the necessary replacement and replenishment of the machinery and equipment. So far, tractor and combine harvester sales for the year to October 2021 were already 6% and 33% ahead of the 2020 levels which showed strong optimism for the agriculture outlook.

With international fertilizer prices already 80% to 150% higher year-on-year (y/y) in October coupled with no end to the global logistic crisis in the short to medium term, we expect further input cost pressures for the field crops and horticulture sectors. Although strong commodity prices have somewhat offset the impact of these cost pressures, higher debt servicing costs in the medium to longer term will thin out margins if the projected interest rate hikes for the years ahead materialize.

Quick Polls

QUESTION

Are you shocked by Sasria’s 2022 rate increases, or is it expected given the sheer scale of the July 2021 rioting plus the ongoing increase in frequency and severity of protest losses?

ANSWER

Yes, I am shocked and so will my clients be shocked
No, it was expected
fanews magazine
FAnews November 2021 Get the latest issue of FAnews

This month's headlines

New proposals to amend PPRs have major impact
The untold truth about intermediary agreements
Rethinking claims
Tik-Tok: The clock is ticking on SA’s R45 billion unclaimed benefits bomb
Medical schemes’ average increases for 2022
Disability claims aggregation
Subscribe now