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GAME INDUSTRY TRENDS ANALYSIS 2024
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Interest Rate Cut Brings Welcome Relief To Farmers
Interest rate cut brings welcome relief to farmers
By Glenneis Kriel | 31 January 2025 | 7:00 pm
The South African Reserve Bank (SARB) has cut interest rates by 25 basis points, taking the repo rate down to 7,5% and the prime lending rate down to 11%.
Farmers and consumers will breathe more easily after the interest rate was cut by 25 basis points. Photo: FW Archive
The Monetary Policy Committee made it clear in a statement that the decision was not made lightly.
It stated that South Africa’s economy contracted in the third quarter of 2024, primarily because of a significant in agricultural production.
However, for the fourth quarter, the committee expected a rebound, supported by ‘normal’ agricultural production and strong household spending, due to lower inflation and two-pot pension withdrawals.
Economic growth was also expected to trend higher to reach 2% by 2027.
Headline inflation started above 5% last year and slowed to 3% in December, resulting in an average inflation rate of 4,4% for 2024, which was in the middle of the committee’s target range.
This was ascribed to favourable goods-price developments, including food inflation which reached a 15-year low, and lower fuel costs.
The committee expected inflation to remain in the bottom half of their target range throughout the first half of the year, and to revert to around 4,5% thereafter, aided by core inflation, which remained at or below the midpoint over the forecast horizon.
The committee, nevertheless, stated that it was concerned about the increasingly challenging global environment. The chances of repo rate cuts in the US were diminishing, and there was a chance that the US Federal Reserve could even push rates up again.
Along with this, economic growth outside the US was generally subdued, while the largest economies in Europe showed weak economic performance. Germany, for example, had two years of contraction, while France and the UK showed slow economic growth.
The committee stated that it had spent time reviewing a trade war scenario, featuring a universal increase of 10 percentage points in US tariffs, with retaliatory measures by other countries.
The committee’s model suggested that this would result in higher inflation and interest rates globally, as well as greater risk aversion in financial markets. Under this scenario, the rand was expected to depreciate to nearly R21 to the US dollar, with domestic inflation reaching 5%.
Meanwhile, Marlene Louw, senior agricultural economist at Absa AgriBusiness, told Farmer’s Weekly that the repo rate cut was good news for agricultural producers and consumers.
“We saw large production expansions during the COVID-19 pandemic when the interest rates were low, but these slowed as the affordability of loans declined due to rising interest rates.
“For consumers, the interest rate will increase their dispensable income allowing them to buy more ‘luxury’ products, such as red meat and fruit.”
Daneel Rossouw, head of sales: agriculture at Nedbank Commercial Banking, agreed: “The lower interest rate will reduce the cost of borrowing and help to improve the profitability of the sector. The recent trend of lower interest rates will also act as a much-needed stimulus for further investment in the sector given the contraction of 2024 from a GDP perspective.”
He added that the outlook for agricultural growth in 2025 was much more positive considering optimism about more favourable climate conditions for field crops and livestock production.
“Port operations remain a big challenge, but the industry is working with various stakeholders and Transnet to improve port operation efficiencies, especially around high value horticultural exports.”
Louw said that GDP was currently a “touchy” subject in agriculture circles.
She explained the quarter-on-quarter decrease of 28,8% in the third quarter of 2024 was over-estimated. BFAP analysis, however, revealed that the first three quarters of 2024 decline in real agricultural GPD should be between 4 to 6%, as opposed to the “official” decline of 15,5%.
“We expected agricultural GDP to contract, because of the drought, the smaller summer crop and lower citrus export than expected. The more modest decline is likely to support positive sentiment toward agriculture,” she said.
Louw said GDP was currently a “touchy” subject in agricultural circles. She explained that the reported quarter-on-quarter decrease of 28,8% in the third quarter of 2024 was overestimated.
BFAP analysis, however, indicated that the real decline in agricultural GDP over the first three quarters of 2024 should be between 4% to 6%, rather than the “official” 15,5% decline.
“We expected agricultural GDP to contract due to the drought, a smaller summer crop, and lower-than-expected citrus exports. The more modest decline is likely to support positive sentiment toward agriculture,” she said.
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