Friday 19 June 2020 saw a number of agri- and aqua-cultural sector experts, farmers and “water warriors” come together to participate in the Agri Gauteng Young Farmer Webinar in conjunction with Grobank.
Bennie van Rooy, CEO of Grobank, noted that it was appropriate for the bank to be associated with this webinar as a true community bank with a history that dates back to the 1940s. “With our rebranding to Grobank, our legacy as the South African Bank of Athens added a focus on the entire food value chain.
“We pride ourselves on being an organisation that can make a difference to the entire agricultural sector, and understand that there is a great need for a financial institution that can play a meaningful role in the space.”
Turning his attention to water scarcity, Van Rooy said it is understood in the sector that water is a limited resource, along with the dangers that scarcity brings with it.
The complications of climate change
Van Rooy said climate change will continue to play a large part in the commodities that we produce and our somewhat unseasonal weather in Gauteng, added to Covid-19, makes for even more complications.
“Water as a finite resource, along with the other effects of climate change, affects the lending decisions banks make,” Van Rooy noted. “Lending in the agricultural space focuses around two main concepts.
“The one concept is the notion of the importance of collateral when financial institutions make loans and, to a large extent, the value of a farm or property and capital items being constructed on that farm would inform the amount of funding that would be made available to that operation,” he said.
The second concept that was part of a funding assessment was the ability of the operation to satisfy the debt repayment requirement with sufficient sustainable cash flow.
“If you look at the enormous potential we have in the agricultural space in South Africa, considering the sheer number of emerging smallholder farmers and subsistence farmers we have, there’s huge potential to increase the number of commercial farmers in South Africa.
“This could make a meaningful contribution to food security, job creation and social upliftment.”
Agriculture and the South African economy
In noting these factors, it’s clear that the agricultural sector has a large and important role to play. Van Rooy highlighted the massive demand for food commodities being produced here and that export markets still remain open, even in the current environment, where there is a demand for quality food in the food retail sector space.
“We know that land tenure and ownership will continue to be important policy and discussions points, but as financiers, we have to start thinking about new ways to fund agricultural projects without certainty of land and land tenure,” he says.
“The only way to ensure this will be to focus on securing cash flow and in order to facilitate cash flow-based lending, it’s important to focus on ways to mitigate production risk.”
Here, Van Rooy asserts, the entire value chain of an agricultural project must be scrutinised. “It must be noted that the availability of water will clearly play a key part in financiers or banks funding agricultural projects without land or land tenure.
“If there is certainty about the availability and sustainability of water plus we add in mentoring and coaching of farmers to further mitigate production risk and we find ways to ensure certainty of offtake agreements, production risk is far better managed.”
The availability of water, along with its efficient usage, is vital. One aspect that banks will continue to find challenging, Van Rooy says, is to grow sustainable funding for their operations.
“Banks are in the business of buying and selling cash and our ability to raise funding is largely dependent on the projects we support. There is increased interest from international investors in the environmentally and socially sustainable lending practices that Grobank has adopted.
“We need to illustrate to our funders how the projects we support in turn support the responsible usage of water, knowing that it will always be a scarce resource.
“In short, Grobank’s funding decisions are also informed by the agri sector’s efficient use of water and this will continue to be the case. The challenge we all face is to ensure water’s sustainability and effective use – our economy is counting on it,” Van Rooy concludes.
If you missed this webinar, you can view it here: