Red meat industry has been severely affected by drought. Picture: DAILY DISPATCH

As the agricultural industry takes stock of the effects of the worst drought in two decades — one that brought hardship to farmers and a surge in food prices — certain challenges are presenting fresh concerns.

"Some farmers won’t qualify for production credit," Omri van Zyl, CEO of Agri SA, one of the largest federations of agricultural organisations, said a week ago.

Lending institutions closed agricultural loan books at the end of August and are preparing to roll out a fresh round of funding ahead of the new planting season, which begins in October.

The red meat, sugar and grain industries have been severely affected by the drought. And Van Zyl said poor harvests, together with challenges due to drought, have left some farmers deep in debt and unable to qualify for production credit. Of concern are smallholder farmers who may not receive credit extension.

At the end of July the agricultural sector submitted a request for financial assistance to government. But Van Zyl declined to elaborate on this application.

While constraints in access to credit are expected to affect the value chain, "at this point it won’t have a major impact on production input," he said. "But it will have an impact on production output in the fourth quarter this year, first quarter next year and second quarter."

The agricultural industry has been in a recession since early last year and economists are not expecting a turnaround until perhaps the fourth quarter of this year, when higher rainfall is expected to ease water scarcity. This may improve the production outlook.

Figures for default on agricultural loans were not readily available last month.

Wessel Lemmer, senior agricultural economist at Absa, says: "Producers that are diversified and that implement the latest best practices have proved to be more resilient to the impact of the drought than those that are less so. We expect the next season holds promise for a much better production year."

Lemmer says Absa clients have recovered well financially. High prices in the grain and oilseed sectors, as well as a weaker rand for export products, have helped most producers recover from the effect of the drought.

Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, says a recent agribusiness confidence index shows that "a sizeable number of farmers might be able to honour their [debt] obligations."

He says these farmers, to some extent, benefited from higher prices, though the volumes produced were small.

If the currency stabilises at R13-R14 to the US dollar, input costs will be more favourable for farmers, he says.

Of total farming costs, 35% are production related, and fuel charges constitute 11%.

Dawie Maree, head of information and marketing at FNB Business Agriculture says: "The mood and outlook from the market is positive.

"The recent rains and rising dam levels have helped to keep the momentum going."

Chris van Zyl, assistant general manager of policy liaison at Transvaal Agricultural Union SA, says in certain instances large commercial farmers have relied on financial buffers, but smaller farmers are more vulnerable.

"To the best of my knowledge, commercial farmers have not benefited from relief measures. The efforts of fellow farmers as well as structures such as Boere in Nood [Farmers in Need] who are helping farmers ... need to be applauded," he says.

But government claims it has provided some assistance to farmers hit hard by drought. Bomikazi Molapo, spokesman for the department of agriculture, forestry & fisheries, says about R435m has been extracted from other funds and reprioritised for livestock feed and water infrastructure projects. The money has been spent on small-scale and smallholder farmers, and commercial farmers in some provinces.

The department says a drought implementation framework is used by the provinces to guide distribution of assistance.

There are about 33 000 commercial farmers in SA. This figure is thought to be dwindling because of land restitution-related issues, safety and security problems (including stock theft in the rural areas), increasing input costs and general uncertainty around government policy.

In his forecast for the sector this year, John Purchase, Agricultural Business Chamber CEO, referred to the economic, social and political environment, with the prospect of a ratings downgrade.

"Exacerbating this imperfect situation is a major and prolonged countrywide and regional drought, impacting negatively on both the agricultural and agribusiness environment. This is putting SA’s open competitive agro-food system and its food security at considerable risk."

A red flag in terms of food security is white maize. SA, Mexico and the US are the largest producers of white maize globally, producing about 37Mt/year, says Sihlobo.

Estimates recently put Mexico’s available contribution at 300 000t.

Zambia, which gained prominence as a maize producer recently, closed its borders to maize exports in April and is expected to review this decision next month.

Sihlobo says SA needs to import 1.1Mt of white maize this year, of which it already has 20%, and 2.7Mt of yellow maize, of which it has 19%.

Yellow maize is readily available and is expected to be cheaper, as global production is expected to be more than 1bnt.

"White maize is the main issue, even though in the short term there are no concerns because we are harvesting something," Sihlobo says.

However, he says there may be constraints on supply in the period between November and April next year.

Importing maize from the US may be dicey, as 72% of its white maize is genetically modified. As this violates local standards, itmay not be imported into SA.

SA, meanwhile, contributes 42% to the Southern African Development Community’s maize production. This is produced by fewer than 3 000 farmers. Sihlobo says there could be challenges for the region if SA does not supply enough maize while Zambia’ s market is locked up.

"Every year, November to April, that is when stock is at its lowest and that’s where concerns are going to come in," he says.

Another challenge for the industry is land restitution policy, which is creating prolonged uncertainty and affecting investment in the agricultural sector.

Chris Van Zyl says land claims submitted before December 31 1998 are still being processed, almost two decades after the deadline.

Meanwhile, a second round of land claims has been authorised.

"The question may well be posed [of] how long the uncertainty created in this regard will continue beyond 2019 — for another 20-plus years?" he asks.

Meanwhile, open mining activities, especially in high-production areas of Mpumalanga, pose a problem for land utilisation and water contamination. And desertification threatens already marginal agricultural land.

Chris van Zyl saysSA has a strategic advantage in being able to ensure sufficient food production and earn valuable foreign exchange from exports.

"It will be welcomed if the necessary support of commercial farmers ensures that restricted land and water resources be utilised in the most productive manner. Should that not be the case, and agricultural land and water resources are allowed to reduce more, SA’s people will pay a high price," he says.