News that Standard Chartered Bank is suing the Land Bank to recover its funds is a stark reminder of the vulnerability of South African agriculture.
Holding something in the region of a quarter of farming debt, the Land Bank is a critically important institution for the farming economy. Its credit rating downgrade and the inability to service its debts are threats to its operations, and also to the farmers who depend on it – and the food supply of the country.
For this reason, the cabinet agreed to a ‘recapitalisation’ of some R3bn in the Supplementary Budget.
However, the Land Bank’s current difficulties also remind us that the sustainability of South African agriculture cannot be assured by the state or state-owned entities on their own. The willingness of private financiers to extend credit to farmers is indispensable.
Anything that discourages private financing undermines the sector, quite probably more so than the state of the Land Bank. Prospective policy, the expropriation of agricultural holdings without compensation (EWC), is key here. There have been repeated warnings – including from within the banking industry – that implementing this would push private banks out of this market.
The withdrawal of banks as a result of EWC would inflict enormous and probably fatal damage on agriculture. There is simply no prospect of state funding stepping in to fill this gap (as some populist voices have inferred). The consequences of this would be dire indeed.
The country’s food security needs a robust Land Bank – but this will mean little where reckless policy could destroy it anyway.
Terence Corrigan
Project Manager, Institute of Race Relations
