Managing farm debt: strategies for financial stability

While adverse conditions like droughts and market volatility cannot be controlled, debt can be managed. Cobus du Plessis advises farmers on how to approach debt during difficult financial times.

- Cobus du Plessis

Farming in South Africa is an expensive, high-risk industry. Rising input costs, unpredictable climate conditions, and market volatility have made it increasingly difficult for farmers to maintain financial stability.

As a result, effective debt management has become critical to ensuring the survival of farms.

For many farmers, debt is a necessary tool for expanding their operations, purchasing inputs, and covering operational expenses. However, outstanding or carry-over debt is a serious financial burden, placing farming businesses under extreme pressure until it is settled.

In agriculture, where cash flow is often unpredictable, borrowing money is sometimes unavoidable. Farmers across generations have faced this predicament, and the key to overcoming it lies in how the situation is managed.

Handled correctly, debt management can preserve valuable relationships with creditors, build long-term trust, and even strengthen a farmer's reputation for financial responsibility. Poor handling, however, can lead to strained relationships and financial ruin.

UNDERSTANDING FARM DEBT IN SOUTH AFRICA

According to the Department of Agriculture's report 'Abstract of agricultural statistics, 2024', the total agricultural debt increased from R187 billion in 2019 to over R200 billion in 2024. Around 61% of farm debt is held by commercial banks like Absa, FNB, Standard Bank, and Nedbank.

Land Bank, once a significant agricultural financier, has seen its loan book shrink from R45 billion in 2020 to R17 billion in 2024, limiting access to affordable financing.

Aside from bank loans, many farmers also rely on supplier credit and private lenders, often at high interest rates, making repayment challenging.

KEY FACTORS DRIVING FARM DEBT

Several elements contribute to the growing levels of farm debt in South Africa. They are: