Seemola Meso, Enhanced Information Team (EIC), Coface
The direct impact on the agricultural industry has dampened the sector tremendously due to the unpredictable climate conditions coupled with economic fluctuations, trade wars and land reform policy issues.
One of South Africa’s more popular unsettling topics – the uncertainty around the land policy on expropriation without compensation, has negatively impacted on agricultural investors, such as impacting a decline in export by 40%. The South African agricultural sector is driven mostly by the export industry. We export a wide range of commodities at a value of $11.1 Billion; the agricultural sector contributes 10% of SA’s total exports.
Agricultural inputs are high determinants of production yields
The increasing cost of oil prices and depreciating rand value, will cause an increase in input prices such as the price of fuel and fertiliser in the next ten years, says BFAP (Bureau for Food & Agricultural Policy) they went on to report that producers need to thus utilize inputs more efficiently. The instability of the above mentioned will also increase the cost of food, predominantly affecting the processing and distribution costs. Food inflation is predicted to increase moderately towards the end of 2019 stabilizing just below 5.5%
The Coface approach to agricultural insurance
Our Aim is to promote trade with the support of risk management and expertise through the experience of a global credit insurer. Coface facilitates credit insurance services on a local and global scale in assisting business enterprises by mitigating risks through expert financial services. We offer services through insuring the key players in the industry and insure the agricultural suppliers to the farmers (fertilizer/pesticides) against non-payment. We monitor current economic trends closely as well as other natural factors that will affect demand and supply in the sector.
Our initial assessment is to try and understand the financial sustainability of farmers (buyers), taking into account fluctuations of the debt levels. Although Capital Expenditure makes up majority of the focus, by monitoring investments in machinery, it is also important that we focus on short term debts. Regarding the capex spent, we account for and offset assets in terms of accelerated depreciation.
We also take into account the nature of the various businesses in the agricultural sector, making provision for the economic and climate effects. Part of our analytical framework is to have transparent and open communication with the farmers (buyers), with the aim of trying to understand the history and unique attributes of individual businesses. This is occasionally done through field visits for conceptual framework and developing open relationships with the farmers.
Challenges in the industry
The agricultural industry faces various challenges due to the unpredictability of climate change, which has resulted in extended production periods; decrease in current produce; late production deliveries; uncertainty and upcoming financial constraints thus resulting in the inability to gauge the final position of farmers. The disruption of climate change has resulted in a local increase of claims paid out between 2017 and 2018 (almost double), and an even further increase is anticipated for 2019. Coface is constantly looking at being more risk efficient in terms of innovation towards the Agricultural Industry by mitigating both natural and economic risks.
Our Product design offer services to all target markets; small, medium and large scale businesses, offering unique options that is tailored for different businesses. One of our comprehensive products; TradeLiner has great essential benefits such as; prevention of bad debts, collection of unpaid invoices and indemnification – a product ideal for seasonal clients within the medium to large-scale sector. The product offers solid cash-flow protection and efficient credit management, financial stability and facilitating healthy growth of your business.
Other financial services include Customized Credit Opinions, a product that offers a way to offset risk during no trading periods, a convenient product for seasonal clients that assist in reducing the risk profile your debtor’s book.
Our CCO product includes expert underwriting opinion on farmers (buyer) prior to any trade taking place as information is key to making the right decisions.