Agriculture a Risky Business

Author: Mr. Yanga Matam

Professional Business Advisor (SAIPA)

South African Council for Natural Scientific Professions (SACNASP)

South Africa’s agricultural sector has undergone a remarkable transformation since the shackles of apartheid were cast aside in 1994. At the heart of this metamorphosis lies the pivotal role played by agriculture funding organizations, serving as a lifeline for farmers and agricultural enterprises. However, the effectiveness of these organisations has been a subject of intense scrutiny, with both notable successes and glaring failures warranting careful examination.

Today’s agri-business environment is characterised by frequent uncertainty, production and market changes that have shortened the life cycle of existing Agri-SMEs. Shorter agri-business life cycles entail weak or no risk management mitigation and financial control to ensure the firms’ survival and to sustain competitiveness in the agricultural industry. Sihlobo and Qobo (2021) noted one of the fundamental constraints to South Africa’s agricultural development and Agri-SMMEs transformation is limited government capacity at national, provincial and municipal levels. They further explained that the basic function of local municipalities as a provider of public services, such as reliable electricity, water, maintenance of roads, among other essential services is critical for farming and all other related agribusiness. As a result, Peters and Buijs (2022) suggest, firms have to manage various uncertainties in the business environment which increases risk.

South Africa has a mix of agribusiness companies and cooperatives, some of which have converted from cooperatives to companies.  In the research paper Wellington Sikuka argues that the successful transition of these companies was made possible by implementing strategic plans that lowered the risk of business failure through well leveraged financial and non-financial support. The SA agribusiness sector is dominated by the former agricultural co-operatives, which converted to companies from 1993 (Sikuka, 2010). The likes of Afgri, Senwes, Suidwes, NWK, Kaap Agri and BKB were founded from former cooperatives and these firms have been dominated and continue to mainly support commercial agriculture. Sikuka compared the financial and Organisational performance of selected agribusiness companies and cooperatives in the Western Cape, South Africa and found that companies had slightly stronger financial performance than cooperatives, especially in terms of asset and revenue growth.

Companies also scored higher on a dynamism score card, which measured their ability to adapt to changing market conditions and customer needs. However, cooperatives were not far behind in terms of organisational strategy, management, structure, and culture. The main limitations of cooperatives were their property rights framework, which restricted their access to external capital and voting rights.

The heart of Agri-smmes’ performance can further  be compared across the  agribusiness and cooperative sectors in Kenya and South Africa more broadly. According to the World Bank report called Enabling the Business of Agriculture (EBA), which assesses laws and regulations that impact the business environment for a sustainable and thriving agricultural sector, Kenya is the second-best country in Africa in effectively enabling agribusiness after South Africa with an average score of 64.8 per cent while South Africa has an aggregate score of 68.7 per cent. The report assessed the regulatory environment and institutional support for agribusiness across various indicators, such as seed quality, access to finance, land rights, and trade facilitation.

Kenya performed well in most areas, but lagged behind South Africa in infrastructure, environmental sustainability, and livestock traceability. On the other hand, Kenya’s cooperative movement is ranked the best in Africa and seventh-best globally, with an asset base of more than 1 trillion Kenyan Shillings(Sh) which is equivalent to ZAR115 800 000 000,00. They have mobilised members’ savings and deposits in excess of ZAR 84 765 600 000,00(approx. Kenyan Sh732 billion), and a loan portfolio of R81 060 000 000,00 (approx.Kenyan Sh700 billion).

The World Bank report highlighted the role of cooperatives in mobilising savings, providing credit, and enhancing market access for smallholder farmers. In Kenya the  national and county governments improve the efficiency of the farmers’ Warehouse Receipting Systems, the Electronic Voucher System for distributing farm inputs to smallholders especially those found in remote villages,  the network of established Village Based Advisors model is part of  their innovative extension service provision to rural and subsistence farmers . This service provision with various social enterprises are part of a monitored network that is part of  the distribution of farm inputs to smallholder farmers, as well as mechanisation of the smallholders among many other initiatives.

It is clear across developing countries as well as our own experiences in South Africa that business mentorship or business advisory services should be solicited from  professional business advisors who are accredited by trusted and recognised organisation. Most importantly accredited Business Advisors should have a solid financial background and be abreast of Agricultural trends  to ensure business sustainability.

References

SIHLOBO,  W  AND  QOBO,  M.  (2021).  Addressing  Constraints  to  South  Africa’s  Agriculture Inclusiveness: BLACK ECONOMIC EMPOWERMENT PROJECT. SCIS Working Paper, Number 26 Wits University.

SIKUKA, W., (2010). The Comparative Performance of Selected Agribusiness Companies and Cooperatives in the Western Cape, South Africa. Stellenbosch: Stellenbosch University (Unpublished MSc Thesis).