The Outlook for Agriculture in 2018

The South African agricultural sector has gone through a turbulent time over the past year, with many farmers facing a battle of survival in drought-stricken areas.  In the first of a two-part series, Kim Cloete speaks to Jo Viviers, a partner in the Moore Stephens Humansdorp office, about prospects for the industry and how Moore Stephens is helping to advise farmers.
 
How do you see the outlook for agriculture in 2018?
 
2018 will probably be about recovering and surviving.
 
Drought in certain areas will make the going tough, while areas that produce feed will benefit.
 
Politics relating to labour issues and minimum wages will put a strain on the sector, while farmers may think twice about expanding or investing in their farms amid lingering talk of expropriation policies and land claims. However, farmers need to be positive about investing if they do not want to be left behind.
 
Effectiveness will be key for the successful farmer, and even more so for the farmer struggling through a drought or the aftermath of one.
 
Exchange rates will influence the input costs as a lot of farmers use imported products, like fertilizer, pesticides and veterinary products.  A sudden strengthening of the rand could adversely affect farmers that export products.
 
Interest rates will also play a big role. Many drought-stricken farmers have borrowed extensively, either to plant or to buy feed for animals. They’ve ended up without a return on that investment and now they will have to service that debt.
 
What is needed for South Africa to grow its agricultural sector in the year ahead?
 
Rain
Political policies protecting the rights of investors
Proper management and planning
Access to cost-effective finance
Access to new international markets, in some instances
 
What kind of role does Moore Stephens play in assisting farmers?
 
As advisors to farmers, we help with projected business plans and cash flows in different scenarios. By doing this, we can plan an investment or finance strategy for the year ahead that ties in with the long-term strategy of the farmer, including of course, tax planning. This is used to obtain the relevant finance needed at the right time for the farmer and at the correct levels, to enhance the growth of both the business and of the client.
 
How do you think the election of Cyril Ramaphosa as ANC President could ultimately play out in terms of agriculture and land policy?
 
I do not think the mere election of Cyril Ramaphosa will change much, but ANC policies regarding land reform and labour issues will have an influence.
The likelihood of the Economic Freedom Fighters (EFF), due to its aggressive attitude towards land expropriation, obtaining some kind of power in a coalition government, is a worry for farmers and landowners. However, even properties with pending land claims are still being bought and sold at good prices, as most farmers hope that common sense will prevail.
 
The drought has hit hard in many areas.  What advice can you offer clients in weathering this tough time?
 
Know when to cut your losses and reduce your debt in order to save your important assets. During times of drought, high debt levels and huge interest bills are the biggest threats to losing your farm and livelihood. Sometimes this happens even after it has started raining again, as you do not have enough money to plant or restock. This can have a cascading effect, where you have low or no income to service the debt that was incurred during the drought. Know when to hibernate so that you can be awake when the time is right to make money.
 
What examples of entrepreneurship and innovation have you seen amongst your clients in the sector? 
 
Technology has played a big part in the agricultural sector in our area.
We’ve seen innovation in planting and irrigation, as well as in milking.
 
Using computerised systems to distribute food and supplements efficiently, as well as machines that significantly boost efficiency during sorting and packing processes, has contributed to the growth of the sector.
 
New entrepreneurs, especially in the BEE sector, have performed exceptionally well due to their willingness to learn as well as the assistance and guidance provided by experienced farmers.
 
What nugget of advice would you offer your clients in the industry?
 
Plan well and be willing to adapt when things change.