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MADE POSSIBLE BY
THE MAIZE TRUST
18
T
HE MOTIVATION FOR THIS ARTICLE WAS INSPIRED
BY AN ARTICLE BY ANDRIES WIESE – ‘HOW SA’S
FINANCIAL WOES AFFECT YOUR BUSINESS,’ PUB-
LISHED IN THE
FARMER’S WEEKLY
OF 29 NOVEMBER
2019. THE WOES ADDRESSED WERE CURRENCY
DEVALUATION, SOVEREIGN CREDIT DOWNGRADES, INVES-
TOR CONFIDENCE AND CAPITAL OUTFLOWS. ONE COULD
ALSO ADD THE LOW GROWTH RATE OR GDP AS A WOE.
It is almost a year later, and the predictions in the article have come true.
The rand has devaluated meaning the value of the rand has decreased
resulting in higher prices for imported products, such as several of our
farming inputs. South Africa has been downgraded to so-called junk sta-
tus. This means investors worldwide see South Africa as a risk to invest
money in. This affects confidence of investors, locally and foreigners, in
South Africa negatively because investors are not sure of a good return
on investment and even if they will get their money back.
At the beginning of the year it was also announced that South
Africa is in a recession because the Gross Domestic Production is
negative. In comparison to a business this means the country is not
making a profit – income is lower than expenditures. Therefore, more
money needs to be borrowed to pay for all government expenses
such as salaries. For a business this will be an indication of poor
management.
Moreover, we have also been hit by the corona virus pandemic
and the resulting lockdown. Apart from the challenges posed by the
lockdown, as discussed in a previous article (
Pula Imvula
September
2020) and the woes indicated in the previous paragraph, a very gloomy
picture of terrible corruption regarding corona virus relief funds are
unfolding. The corruption affects the already negative view of South
Africa as far as investment is concerned.
These are a few terrible curved balls thrown at our farmers, big or
small. Regarding the management of your farming business you can
either face these balls or duck. The challenge being these curved balls
are all beyond the control of any farmer, they are external factors.
In practical terms, the effects of these woes on a farm are briefly that
imported inputs such as fuel, chemicals, fertilisers and machinery has
become more expensive, borrowed funds became more expensive and,
funds to invest into your business became scarce. On the other hand,
it is also true that a devaluation of the rand presents an opportunity for
exporting goods if possible.
Let us be positive and prepare to face these curved balls and ex-
plore the opportunities they represent. One can at least protect your
wickets instead of being bowled out. We cannot underestimate the
risks involved when faced with these financial realities, but they can
be a wake-up call. It will be worthwhile to face these curved balls to
remain a sustainable farmer. People must eat.
ENSURE MEASURES ARE IN PLACE
To face these curved balls put on your gloves and helmet and take
up your bat:
• See to it that you have a
proper record-keeping system
to be able
to evaluate the financial aspects of your farm properly. Applying
the principles of precision farming will be helpful to ensure better
records and provide improved information.
• Manage your cash-flow diligently by applying your
cash-flow budget
especially as far as purchases are concerned. Be very aware of buying
at the spur of the moment especially with reference to more expen-
sive capital items (machinery, implements). A special is not always a
special. Without a proper
cash-flow statement
you will not be able to
manage your cash-flow properly.
• Control your private or household expenses – it is very helpful and
advisable to have a separate budget for these expenses. Do not
live beyond your financial means.
• Manage the costs of your inputs by means of a farm business plan
and take steps to reduce the costs. With a
proper income statement
,
it is possible. Ensure that you use the correct quantity of inputs as
advised and/or as planned.
• Evaluate the financial position of your farming business thorough-
ly. Use your
balance sheet
and have a good look at your liabilities.
Debt is not your friend and too much debt has been the down-
fall of many a farmer. At present interest rates are low due to the
pandemic, but refrain from seeing this as an opportunity to bor-
row more money. The rates will increase again in future. Should
you really need to borrow money, negotiate the lowest possible
interest rate.
• Evaluate your production methods. Farm with nature and improve
the health of your soils. Apply the principles of conservation farm-
ing, this will assist in reducing your production costs.
• Most important – do you have a
proper business plan?
CONCLUSION
Some of the measures mentioned have been discussed in previous arti-
cles from different angles but the repetition only emphasises the utmost
importance of these measures. Do remember that assistance to re-eval-
uate your business is available. Make use of the expertise available from
agricultural businesses and institutions such as Grain SA.
FACE THE FINANCIAL WOES
of South Africa
Marius Greyling, Pula Imvula
contributor. Send an email to
mariusg@mcgacc.co.za
Let us be positive and prepare
to face these curved balls and explore
the opportunities they represent.