THE CONTINUING cash troubles plaguing the Land and Agricultural Development Bank of South Africa (Land Bank) which told parliament this week it’s in dire need of recapitalisation from shareholders if it is to efficiently fulfil its developmental mandate could hurt black farmers more.
The Land Bank presented its woes which include a shortfall of billions in unpaid loans and downgrades by credit agency Moody’s to the standing committee on appropriations.
The bank was downgraded three times, in January, February and April last year.
The committee noted the significance of the bank’s developmental mandate, especially for emerging black farmers, women, youth and people with disabilities in agriculture.
It also said however that access to funds remains a challenge for black farmers and encouraged officials of the Land Bank to pay closer scrutiny to this.
The bank revealed in its presentation to the committee that it had made significant effort to grow the Development and Transformational Loan Book by R6.6 billion in the last five years.
However, it said that supporting development and transformation “has proven to be a challenging task because “the cost of the bank’s funding is based on commercial interest rates from the capital markets; and the strict financial covenants that the bank has to adhere to.”
The bank said in its presentation to the committee its definition of development clients refers to smallholder farmers who are usually new entrants with an annual turnover of between R50 000 and R1million, and medium-scale commercial producers with an annual turnover ranging between R1 million and R10 million.
It said transformation clients refers to agri-businesses with an annual turnover above R10 million, undertaken by persons or entities that are wholly black-owned; majority black-owned shareholding of 51% or more; or substantially black-owned shareholding of between 30% and 50% and a BBBEE Level of 1 – 4.
Agriculture is considered the least transformed industry owing to challenges resulting from the land reform process which has been plagued by slow transfer of land into black hands.
Eastern Cape farmer Aggrey Mahanjana, who is the managing director of the National Emergent Red Meat Producers Organisation (Nerpo), which represents 2.8-million black livestock farmers said government has failed to grow the number of black commercial farmers.
“Land Bank has failed because government has failed,” said Mahanjana, referring to the fact that the bank’s funding of black commercial farmers only amounts to 20%.
He said as a result of government’s failure to create a strong base of black commercial farmers, the majority of black farmers do no qualify for Land Bank loans because they cannot afford repayments.
“Black farmers will be left worse off [if the Land Bank fails],” said Mahanjana.
He said this was because commercial banks have no appetite to fund primary agri-businesses which are dominated largely by black owned enterprise.
“Anything that’s a start up, they [banks] run away,” he said.
Land Bank chief executive officer Ayanda Kanan told the committee the negative impact of the Moody’s downgrade in January and March 2020 led to disinvestment by some investors and exacerbated the bank’s liquidity issues.
He said the “liquidity challenges and the subsequent breach of loan covenants and defaults disrupted the conclusion of funding lines that were in the pipeline on the back of the support by the state’s R5.7 billion guarantee.”
A former senior Land Bank employee who is now an independent farmer slammed the bank saying it never supported black farmers.
“The LB [Land Bank has] never been there for black farmers. I worked for them in 2000 and left earlier because of their ways of treating black farmers. Their closure will never be felt by any black farmer,” said the farmer who did not want to be named.
“We need pro-black and empowering agricultural and land bank and not that thing. They have a lot of fallow land but they can’t even make it available to blacks who need it most. Collapse it [Land Bank] and rebuild new one.”
He accused the bank of having policies which excluded blacks.
“With new credit regulations, it even became worse. White consultants in late 1990’s and early 2000 made sure that blacks are diplomatically failed without any politician seeing it.”
The committee said it was concerned with the liquidation challenges that have resulted in the bank defaulting on some of its loans. The bank said poor performance in the agricultural sector such as erratic rainfall, severe drought and diseases impacted on farmers’ ability to honour their loan obligations to the bank.
In its presentation the Land Bank said it had requested a R5 billion recapitalisation to address capital buffers and advance the development mandate as part of its key interventions which included the appointments of a CEO and CFO in February and March this year “to stabilise executive leadership.”
The bank said engagements are in progress with funders and lenders for “a standstill arrangement, a debt restructure plan to avoid further disinvestments in the bank and arrangements to cure defaults.”