Top Africa Corn Grower Unmoved by $1.1 Billion Drought Need

April 15, 2016 08:04 AM

Farmers in South Africa, which produces about a fifth of the continent’s meat and corn, are confident about increasing investment despite the worst drought in more than a century and government policies that have created uncertainty over their land holdings.

As many as 70 percent of growers are reinvesting in their businesses, Ernst Janovsky, the head of agribusiness at Johannesburg-based Barclays Africa Group Ltd., said by phone Wednesday.

“Confidence levels remain high,” Omri van Zyl, the chief executive officer of farmers’ lobby group AGRI SA, said in an interview at Bloomberg’s offices in Johannesburg. “The guys that may not make it get quietly gobbled up by others, so the production base is getting smaller but the units are getting larger and more diversified.”

South Africa, a net exporter of agricultural products, last year had the least rainfall since records started in 1904, damaging crops and herds and raising food prices. The farmers will need as much as 16.6 billion rand ($1.1 billion) in the year through March to subsidize feed purchases, provide grants and interest-rate subsidies to aid commercial growers in financial distress and help operators pay workers, a study by AGRI SA and others showed.

The government in 2014 said it’s considering buying half of every farm and would deposit payments for that land in a trust that will finance production as it seeks to change land-ownership patterns that were skewed in white people’s favor during apartheid rule, which ended in 1994.

The Regulation of Land Holdings Bill, first outlined by President Jacob Zuma in February 2015, will limit the amount of land anyone can hold to 12,000 hectares (29,652 acres). It proposed a ceiling of 1,000 hectares for a commercial small-scale operation, and 5,000 hectares for a large farm, Land Reform Minister Gugile Nkwinti said in a speech last year.

Policy Despondency

While farmers are putting money in, they are despondent about a lack of certainty over land-reform policies, Janovsky said. “All these laws that are coming along, those are the things that create more havoc and it’s also not economically viable to implement some of those things.”

Growers’ organizations support bringing in more black farmers, but require policy consistency, Van Zyl said.

“Clearly we need to get our house in order,” Van Zyl said. “Time for talk and lip service is over. If we can iron out these kinds of policy uncertainty, we can really pull in a lot of investment into this country.”

Linda Page, a spokeswoman for the Department of Rural Affairs and Land Reform, didn’t immediately respond to questions about the status of the policy change when contacted by phone and e-mail.

About 2,000 of the nation’s farmers are in severe financial distress and won’t be able to access credit in the coming season because of the drought’s effect on their operations, according to the industry report. There are about 35,000 commercial farmers in the country.

The state-owned Land Bank of South Africa plans to raise 15 billion rand over the next three years to help farmers with drought relief, CEO Tshokolo Nchocho said last month.

Change Game

“If you really want to change the game, then you channel all of that money through the Land Bank,” Van Zyl said. “Prioritize that, get proper extension services for emerging farmers and put the thing on steroids.”

The funds required to help agricultural producers through the drought are “a moving average, depending on the amount of rain we get,” Van Zyl said. “There is no piggy bank for a national disaster. We need to protect the production base of South African farmers.”

AGRI SA has had meetings with United Nations’s Food and Agricultural Organization about the effects of the drought on the Southern African Development Community, or SADC, countries. The SADC Council in March declared a regional drought disaster and issued a statement of appeal for help. AGRI SA has also held discussions with the African Development Bank for help, Van Zyl said.

While the price of corn in the U.S., the biggest producer, has more than halved from a record in 2012 because of a glut in supply, the cost of the white variety of the grain produced in South Africa has more than doubled since the start of last year because of the drought. The white type used to make a staple porridge locally was at 4,509.80 rand ($310) a ton on Friday. Yellow, which is fed to animals, was at 3,175 rand.

Farmers who have been able to produce white corn “are going to make a lot of money,” Van Zyl said. For those who can’t, “it will take longer to recover financially. Those that are losing are losing big.”

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