The downgrade of the Landbank to junk status by the credit rating agency Moody’s Investors Services is just the start of financial challenges that will give the agricultural industry a blow this year.
“It is increasingly getting more difficult to have a positive attitude towards the future of agriculture in South Africa,” says Mr Louis Meintjes, the president of TLU SA. “Not only are our farmers struggling to keep their heads above water because of challenges like farm safety, unreasonable labour laws, stock diseases, drought and limited export opportunities because of the poor economic climate, but now they are plunged into even more debt by a downgrade of the Landbank which provides credit to most farmers.”
The Landbank has been in review since November 2019 and is now a notch lower at Ba1 after the downgrade, placing it in junk status.
“It will become more expensive for the Landbank to do business because the bank depends on funds from somewhere else to provide credit to clients,” says Mr Meintjes. “As a result of the downgrade, the Landbank will have to pay more for the funds which will lead to an increase in the interest rate of clients.”
According to Moody’s the downgrade was done because they don’t foresee the state having enough room to support state-owned entities (SOE’s). The downgrade of the Landbank is just the beginning of downgrades of SOE’s and finally the country.
Moody’s is the only credit rating agency who have not downgraded the state to junk status. The next grading decision by Moody’s will happen in March and other agencies, Standard & Poor and Fitch Ratings, will probably decide over gradings after the budget speech on 13 February.
“For TLU SA it is a further stab in the heart that the Landbank – which was founded at the request of TLU SA in 1905 – could not succeed in its mandate because of continuous mismanagement and will probably be responsible for the downfall of many farmers.”
