The net income of some farms‚ especially those owned by small-scale farmers‚ has deteriorated substantially over the past decade compared with the total cost ratio‚ with a serious effect on the potential recovery rate of farmers should they fail‚ according to Absa's agriculture business unit.
Addressing farmers at the Agri Mega Week in Bredasdorp in the Western Cape‚ Ernst Janovsky‚ head of the agriculture unit‚ said many farmers' finance and input costs already outstripped the security value of their fixed assets.
"To survive‚ farmers needed to increase their output by becoming more prudent in their methods of production. The net farm income of astute farming enterprises had increased substantially over the past decade as they embraced technology and stayed ahead of the pack by exploring new technology‚" Janovsky said.
He said another positive factor in the agriculture sector was property values‚ which were expected to continue to grow by between 10% and 12% a year. "Meanwhile‚ debt-to-asset ratios had improved substantially over the past decade‚ despite a setback for a few struggling farmers," he added.
As a result‚ turnover-to-debt ratios were improving.
Janovsky said financial institutions had to ensure that market and production risks were mitigated and managed through the introduction of commodity-based finance products. "This could be done by introducing insurance products to improve security to help keep more farmers operational," he added.