Tractor farm food farming. Picture: THINKSTOCK
Picture: THINKSTOCK

ABSA, in partnership with US agricultural company John Deere, had lent farmers R1bn for equipment in the past seven years, Wessel Steffens, head of the bank’s vehicle and commercial asset finance division, said on Thursday.

Both companies expect their strong profits to continue as agricultural commodity prices remain high and farmers continue to purchase agricultural equipment.

Sales have also been boosted by the government’s recapitalisation of failing farms, with the government giving land-reform beneficiaries equipment to resume farming activities and improve output.

Absa’s vehicle and commercial asset finance division and John Deere’s financial arm entered a joint financial alliance in August 2005 in a bid to broaden the accessibility of capital finance for expansion to farmers in the commercial segment, especially in the agribusiness sector.

Mr Steffens said the success of the alliance, particularly John Deere’s book performance, was underpinned by several factors, including "a dedicated and efficient credit routing process that assured quality assessment standards".

John Deere sub-Saharan Africa MD Len Brand said the partnership had proven itself to be fruitful for both organisations and farmers were increasingly seeking finance for John Deere products, which has at least 32% of the market.

The two organisations said on Thursday that the sector was far from experiencing a slump, considering that the United Nations Food and Agriculture Organisation (FAO) had estimated that more than 80% of the projected expansion in arable land worldwide is expected to occur in sub-Saharan Africa and Latin America.

In Africa, this will take place in the large swathe of land below the equator, and between Angola in the southwest and Mozambique in the southeast, which is on South Africa’s doorstep.

According to Absa’s outlook for 2013, over the past three decades agriculture has experienced a cost curve — the rate at which input commodity price increases outpaced output commodity prices — of approximately 3% a year.

Although in principle farmers are price takers at both ends of their industry — input and output — they are to some extent managing seasonal price volatility and improving their equipment by forward contracting.