The Great South African Drought by numbers, but they just don’t add up

The R400-million from the Industrial Development Corporation (IDC) via the Land Bank is a special concessionary loan facility aimed at 437 “clients” to “save 2,185 jobs”, the parliamentary agriculture, forestry and fisheries committee was told. Half of the farmers assisted must be “BEE farmers” (the corporation would also scrutinise how many were women and youth beneficiaries), and others part of the agro-processing chain. Of this facility, R291,397,535.09 has already been earmarked for farmers in the drought-stricken provinces of the Free State, Mpumalanga, Limpopo, KwaZulu-Natal and North West, according to the IDC presentation.

The majority of the available R400-million, or R250-million, will be awarded at prime less 3%. Meanwhile, the Land Bank presentation to MPs also showed it has restructured over R600-million in “distress accounts of commercial farmers” through intermediaries, and loans of R14-million were restructured in the past season alone.

But somewhere along the lines there seems to be a communication disjunction. Just hours before the parliamentary committee meeting, the economic ministerial cluster released a statement saying there is “at least R130-million to support indebted commercial farmers by the IDC and Land Bank”. At that media briefing Agriculture, Forestry and Fisheries Minister Senzeni Zokwana said the R16-billion losses across the agriculture sector could be dealt with “if government is working with the IDC and Land Bank to make sure farmers are assisted”. Discussions are ongoing, including talks with National Treasury, he added.

And there are other long-term deliberations, Zokwana told Daily Maverick. Steps are being taken for an international tractor manufacturer to establish a plant in the Eastern Cape to bring down agricultural input costs. Also, talks are under way with the trade and industry department to establish upgrade the ageing fertiliser mixing plant in Richard’s Bay; the phosphate is mined in Limpopo, exported and re-imported as fertiliser. Meanwhile, the Land Bank is looking at an insurance premium subsidy for farmers; South Africa is the only BRICS country not doing this.

That conversations are continuing is hopeful. But the situation right now falls short of what many say is needed until the effects of the drought are dissipated as anticipated by 2019. And it’s also short of what the AgriSA-led drought task team recommended: R12.5-billion over three years in the form of government guarantees worth R4-billion and a farmworker monthly subsidy to ensure job security.

Instead on Tuesday it emerged the Public Investment Corporation (PIC) had made available R5-billion to the Land Bank to assist farmers to recover from the drought, and to recapitalise. Established in 1911, the PIC is wholly government-owned and invests, among other, the monies of the Government Employees Pension Fund (GEPF).

MPs were told the PIC billions are the first tranche of the R15-billion the Land Bank will raise over the next three years to assist famers to recover from the drought. Additional funding is also being negotiated from the World Bank (R1.5-billion) and the African Development Bank (R1-billion). The terms and conditions are the usual, no special concessions. And it is from this pool farmers could seek loans to recover from the drought. Already R34.9-million have been awarded through 32 approved applications by emerging black farmers. Seven applications were rejected and three referred back for further information and clarification. The average loan value is just over R1-million to either extend the existing loan, or add further financing for production.

Land Bank CEO Tshokolo Nchocho told MPs there has been in increase of “nonperforming loans”, banking-speak for those who can’t afford to repay. The percentage of troubled borrowers almost doubled to 5.1% today, up from 2.8% in March 2015. The level of nonperforming loans is creeping the bank’s 6% threshold.

“This is where we have to speak honestly and face the beast into the eye,” said Nchocho. Farmers unable to pay up are referred to the bank’s “work-out and recover unit” to try restructure repayments, or extend it over a longer period. “We give it a chance… However, if such efforts fail (we have to apply banking principles) we have to put such a client into liquidation.”

“There’s no point avoiding reality,” added Nchocho.

AgriSA CEO Omri van Zyl said some of the concessionary terms have been clinched in discussions with the IDC and Land Bank, but there are limits. “The Land Bank is a public lender. They get their money from the open market. They can only do so much… It’s a drop in the ocean,” he told the Daily Maverick, adding further discussions with commercial banks are now under way.

“The problem is not necessarily now. The problem is from May onwards when we enter winter, when we don’t have feed and (seeds for) the next planning season,” Van Zyl said. “It’s prudent to declare it a national disaster now. We need to protect food security for the short, medium and long term. We can buffer the blow through state intervention….”

But that national disaster declaration clearly remains off the table. On Tuesday Zokwana said the call came only from one political party, not by those involved in agriculture. “If a national disaster is declared, the banks would reduce their exposure. We can’t run the risk… I don’t think (declaring) a national disaster would assist more than we are doing now… I can assure you, the farmers are getting the ear of South Africa,” he said.

For months now ministers have argued that as not every province is affected, there was no need to declare a national disaster. Yet Section 23(6) of the 2002 Disaster Management Amendment Act simply states, “A disaster is a national disaster if it affects — (a) more than one province: or (b) a single province which is unable to deal with it effectively”.

However, declaring a national disaster kicks off certain financial processes such as the release of money from the contingency fund. That kitty for unforeseen events was depleted in the 2015/16 financial year, which ends 31 March 2016, because of the above-inflation 10.1% increase for public servants’ salary packages. But from 1 April 2016 there will be R6-billion available in the contingency reserve, courtesy of some careful juggling, or reprioritisation.

Such reprioritisation is also the reason government found on its balance sheet the just over R1-billion it now repeatedly touts as the solution to the drought. About half of that money comes from the water and sanitation department, which having spent only 54.1% of its total allocation, is now redirecting existing funds for drought-mitigating bore hole drilling, water tankers and repairs and/or maintenance of water infrastructure. About R528-million from the agriculture and rural development department allocations is now earmarked to support small-scale farmers. In addition, provinces have found R124-million, specifically for livestock feed, as they have also been told by national government to redirect 20% of its R226-million Letsema grant, again to livestock feed.

Following the budget, the government also is making much of the R2.8-billion allocated over the next three years to the Fetsa Tlala food security programme, aimed largely at subsistence farmers. But about 80% of South Africa’s food is produced by about 34,000 commercial farmers, both black (or emerging in government-speak) and white, while small-scale farmers contribute the remaining 20%.

South Africa needs 11.25-million tons of mielies a year to feed its citizens. The officially confirmed 2015 mielies crop was 9.9-million tons. According to the national crop estimate committee, the 2016 official crop estimates stands at 7.438-million tonnes.

About 3.8-million tonnes of mielies have to be imported. Government does not pay, private sector companies do, and the impact on already increasing food prices needs to be watched. The maize is brought to South Africa on import parity prices, thus the rand-dollar exchange remains crucial. Port tariffs at Durban where the loads are docked and the costs of transporting it to the storage silos in Randfontein, Gauteng, are added.

The government says it is already talking to Transnet, which runs ports and railway lines. But no one is yet talking about the estimated R14-billion it will cost to import the mielies, the staple food of millions of South Africans. The numbers just don’t add up. DM

Photo: Cows look for something to graze in a dry field on the West Coast of Cape Town, South Africa, 31 January 2016. EPA/NIC BOTHMA.