Chapter 8

Sales, expenditure and debt in agriculture

 

Introduction

This chapter assesses the overall trends in the commercial farming sector with regard to gross income from the sale of agricultural products, expenditure and debt. The discussion then focuses on the pattern of income generation by both commercial farmers and households in the former homelands. On the basis of the annual commercial agricultural surveys, trends in the incomes of farmers in the commercial sector from the sale of agricultural products, and the type of agricultural products that generate this income, are discussed. Thereafter, the situation regarding sales of agricultural products and type of products sold by households in the former homelands is assessed on the basis of the rural survey conducted in 1997. The subsequent section reviews the patterns of expenditure across the two survey instruments. Related to the level and composition of income and expenditure in the agriculture sector, is the issue of farming debt. The final section of this chapter highlights important aspects of farming debt across the two survey instruments.

The annual commercial agricultural surveys indicate that, in 1988, income from the sales of agricultural products by commercial farmers (R14,1 billion) was marginally higher than expenditure (R12,5 billion). Figure 49 shows that, during the period 1990-1993 total expenditure (including remuneration to employees) was similar to the gross incomes received by commercial farmers. However, since 1994, the income generated from the sale of agricultural products in the commercial farming sector has outstripped total spending by around R3 billion each year. During the overall period (1988 to 1996), farming debt increased from R10,5 billion to R18,9 billion.

Figure 49: Gross income, total expenditure and farming debt in the commercial farming sector, 1988-1996

Figure 49: Gross income, total expenditure and farming debt in the commercial farming sector, 1988-1996

Income from sales: commercial farms

On the basis of the annual commercial agricultural surveys, Figure 50 shows that the trend in total gross income from the sale of agricultural products rose steadily during the period 1988 to 1996. In 1988, the total gross income in the commercial farming sector was R14,1 billion; by 1996, it had more than doubled to R32,9 billion, largely on account of a 37,8% increase in gross income in 1994.

In the commercial farming sector, the trend for each of the major types of agricultural sales was also upward over the period 1988-1996. There was, however, a downturn in gross income from the sale of field crops in 1993 (Figure 50). Income from horticulture sales rose particularly strongly over the period as a whole – from R2,5 billion in 1988 to R9,1 billion by 1996.

Figure 50: Source of income from sales in the commercial farming sector by type of product, 1988-1996

Figure 50: Source of income from sales in the commercial farming sector by type of product, 1988-1996

The annual commercial agricultural surveys also indicate that, in the commercial farming sector, gross income from the sale of animals and products still accounted for the largest share of total income each year. However, these sales declined from 48% of total gross income in 1988 to 40% in 1996 (Figure 51). The proportion of income generated from the sale of field crops also decreased from 30% to 26% during the period 1988 to 1996. As a consequence of the rapid growth in horticulture sales, its contribution to gross annual income rose from 18% in 1988 to 28% in 1996. By 1996, horticulture was the second most important source of income for commercial farmers after animals and animal products.

Figure 51: Source of annual income from the sale of agriculture produce in the commercial farming sector, 1988–1996

Figure 51: Source of annual income from the sale of agriculture produce in the commercial farming sector, 1988–1996

The results of the annual commercial agricultural surveys suggest that in the commercial farming sector there is a strong association between particular types of agricultural sales and particular provinces (Figure 52).

As illustrated in Figure 52, in 1996 field crops were the single largest source of income in the commercial farming sector in two provinces, accounting for 35% of the annual income of commercial farmers in Mpumalanga, and 54% of the annual income of commercial farmers in Free State.

  • By comparison, in 1996, horticulture accounted for more than half (51%) of the gross annual income of commercial farmers in Western Cape. In four of the other eight provinces, horticulture also accounted for more than 30% of the gross annual income of commercial farmers.
  • The sale of animals and animal products was the single largest source of income for commercial farmers in six provinces, accounting for 41% of the gross income of commercial farmers in Gauteng, 43% in KwaZulu-Natal, 47% in North West, 50% in Northern Cape, 51% in Northern Province and 59% in Eastern Cape.

 Figure 52: Source of income earned by the commercial farming sector by province, 1996

 Figure 52: Source of income earned by the commercial farming sector by province, 1996

Income from sales: former homelands

This section reviews the patterns of income generated from the sales of agricultural produce in the former homelands on the basis of the rural survey conducted in 1997. The few households that actually sold produce are pointed out; income earned from the most important types of produce is highlighted; finally, provincial distribution of income is discussed in relation to livestock, crops and chickens.

According to the results of the rural survey in the former homelands, only a small proportion of households that engaged in farming activities (2%) kept records of their farm-related income and expenditure in the 12 months prior to the survey of June 1997. As a consequence, the discussion that follows is broadly indicative, rather than definitive, of the income and expenditure patterns of households in these areas.

Reflecting the subsistence nature of agricultural production in the former homelands, the results of the rural survey indicate that, although 902 000 households owned livestock, 766 000 owned chickens and 1,2 million grew field crops, relatively few had surpluses to sell. Figure 53 illustrates the incomes received in the 12 months prior to the survey by households that had surpluses to sell.

Among the 16 000 households in the former homelands that sold animal products, 75% earned annual incomes of R200 or less from such sales. In terms of the 63 000 households which sold chickens, 70% also earned incomes in this range. The sale of field crops and livestock tended to be associated with higher incomes. For example, 21% of the 98 000 households that sold field crops earned R201-R500, and 18% earned R1 000 or more from such sales in the 12 months prior to the rural survey. In terms of livestock, nearly half of the 165 000 households who sold livestock (49%) received R1 000 or more from such sales.

Figure 53: Annual income from the sale of animal products among the few households selling these items in the former homelands by type of product, June 1997

Figure 53: Annual income from the sale of animal products among the few households selling these items in the former homelands by type of product, June 1997

Of the 165 000 households in the former homelands that sold livestock, 39% were in Eastern Cape, 28% in Northern Province and 13% in KwaZulu-Natal. Less than 5% of households which sold livestock were situated in either Free State or Mpumalanga. As a consequence, the distributions shown in Figure 54 should be interpreted with caution since the sample sizes for provinces such as Free State and Mpumalanga may be too small for meaningful analysis.

 Figure 54: Annual income from the sales of livestock among the relatively few households selling these items in the former homelands by province, June 1997

 Figure 54: Annual income from the sales of livestock among the relatively few households selling these items in the former homelands by province, June 1997

Figure 54 shows that, except in Northern Province, the majority of the relatively few households that sold livestock earned R1 000 or more from such sales, ranging from 49% of households actually selling livestock in Eastern Cape to 66% in Mpumalanga. In Northern Province, only 37% of households that sold livestock earned incomes in that range. More than one-third (37%) of households in Northern Province earned R200 or less from livestock sales in the 12 months prior to the rural survey. 

A total of 98 000 households in the former homelands earned an income from the sale of field crops in the 12 months prior to the rural survey of June 1997. Of these households, 28% were in Eastern Cape, around 25% in each of KwaZulu-Natal and Northern Province, while only 3% were in Free State. Figure 55 shows the pattern of field-crop sales by province.

 Figure 55: Annual income from the sale of crops among the relatively few households selling these items in the former homelands, by province, June 1997

 Figure 55: Annual income from the sale of crops among the relatively few households selling these items in the former homelands, by province, June 1997

Among the households in each province that sold field crops (Figure 55), more than one-half (53%) of those in Northern Province earned R200 or less, compared with more than one in every three in Mpumalanga (37%) and Eastern Cape (38%). Notably, only 11% of households in Eastern Cape and 51% in North West that sold field crops earned incomes in the highest category (R1 000 or more).

In terms of chicken sales, as noted earlier, of the 766 000 households in the former homelands that owned chickens, only 63 000 actually sold any in the 12 months prior to the rural survey conducted in June 1997. Figure 56 shows that the income earned from such sales was modest by comparison with either livestock or crop sales. Among households which sold chickens, around one-half in Northern Province (53%) earned R200 or less, compared with more than three-quarters of households which sold chickens in Eastern Cape (76%), KwaZulu-Natal (88%) and Mpumalanga (93%) that earned incomes in this range.

Figure 56: Annual income from the sale of chickens among the relatively few households selling these items in the former homelands by province, June 1997

Figure 56: Annual income from the sale of chickens among the relatively few households selling these items in the former homelands by province, June 1997

Expenditure: commercial farms

This section highlights important aspects of the level and trend in expenditure (excluding salaries/wages and payments in kind) in the commercial farming sector on the basis of the annual commercial agricultural surveys. The levels and trends in remuneration are discussed in greater detail in Chapter 7 and included in this chapter only in the total expenditure data.

The results of the annual commercial agricultural surveys indicate that total expenditure in the commercial farming sector rose from R10,5 billion in 1988 to R24,0 billion in 1996, largely on account of the rise in current expenditure (Figure 57). Over the period as a whole capital expenditure also rose, from R1,9 billion in 1988 to R3,9 billion in 1996. However, capital spending still only accounted for 16% of total spending in 1996. These figures do not take inflation into account. 

Figure 57: Expenditure in the commercial farming sector, 1988-1996

Figure 57: Expenditure in the commercial farming sector, 1988-1996

Figure 58 shows the 1996 breakdown of current expenditure in the commercial farming sector on the basis of the annual commercial agricultural surveys.

Total current expenditure by commercial farmers in 1996 amounted to R20 billion, of which stock and poultry feed was the single largest expenditure item, costing farmers R3,8 billion – equivalent to 19% of their total expenditure. Repairs and maintenance was the next single largest item of current expenditure in 1996 (R2,5 billion), followed by interest payments (R2,0 billion).

Figure 58: Current expenditure in the commercial farming sector, 1996

Figure 58: Current expenditure in the commercial farming sector, 1996

In terms of the composition of capital expenditure by commercial farmers, overall, since 1988 capital spending has risen steadily – from R1,8 billion in 1988 to R3,9 billion in 1996. However, over the period, expenditure on equipment has almost doubled while at the same time expenditure on new development work tripled from R281 million in 1988 to R942 million in 1996. Figure 59 reflects these trends.

The figure also indicates that, in 1996, new development work in the commercial farming sector accounted for 24% of the total capital spending of farmers, rising from 15% in 1988. Reflecting the capital intensity of farming operations in the commercial sector, expenditure on equipment has accounted for more than half of total capital spending every year since 1988.

Figure 59: Type of capital expenditure in the commercial farming sector, 1988-1996

Figure 59: Type of capital expenditure in the commercial farming sector, 1988-1996

Expenditure: former homelands

The scale and spending patterns of households engaged in farming activities in the former homelands are markedly different compared with the commercial farming sector. In terms of households in the former homelands that were engaged in farming activities, current expenditure on agricultural inputs relates to spending on items such as fertilizer, manure, seeds, seedlings and insecticides.

On the basis of the rural survey in the former homelands, Figure 60 shows that nearly half of the households that were engaged in farming activities (45%) spent R100 or less on all types of inputs; an additional 14% spent between R101 and R200 and a similar proportion (14%) spent R201 and over. Notably, a substantial proportion of households that were engaged in farming activities (26%) reported that they spent

nothing on inputs – ranging from 18% of households in Eastern Cape to 31% in KwaZulu-Natal, Northern Province and North West. Moreover, more than one in every five households that were engaged in farming activities in North West (83%), Northern Province (88%) and Free State (88%) spent R100 or less on agricultural inputs during the 12 months prior to the rural survey.

Capital spending by households in the former homelands that were engaged in farming activities was also not substantial. Overall, 98% of the 1,6 million households that engaged in farming activities spent nothing on buildings. In terms of equipment, while 175 000 households had incurred such expenditure, 78% spent R100 or less on agricultural equipment in the 12 months prior to the rural survey. The vast majority of these households (82%) purchased hand-held tools.

Figure 60: Gross annual expenditure on all types of inputs in the former homelands, June 1997

Figure 60: Gross annual expenditure on all types of inputs in the former homelands, June 1997

Farming debt

The income and expenditure patterns reviewed earlier with regard to commercial farming operations are linked to the level and composition of farming debt. This section focuses on the level and type of outstanding debt of commercial farmers on the basis of the annual commercial agricultural surveys. Given that, as indicated in the rural survey, the farming operations in the former homelands are mostly of a subsistence nature, and the lack of credit facilities is a problem for many households, this discussion does not extend to the former homelands. For example, in the former homelands, only 68 000 of the 1,6 million households that were engaged in farming activities reported that they had any farming debt in the 12 months prior to the rural survey conducted in June 1997. In addition, as many as 28% of households that were engaged in farming activities stated that access to finance was the main area in which they needed assistance.

In the commercial farming sector, the annual commercial agricultural surveys indicate that the level of farming debt outstanding rose by 79% during the period 1988 to 1996, from R10,5 billion in 1988 to R18,9 billion in 1996 (Figure 61).

 Figure 61: Farming debt outstanding in the commercial farming sector, 1988-1996

 Figure 61: Farming debt outstanding in the commercial farming sector, 1988-1996

In terms of the type of debt, Figure 62 shows that commercial banks were the single largest creditors of the commercial farming sector, accounting for R7,0 billion (37%) of total debt outstanding in 1996, followed by the Land Bank’s R3,1 billion (17%) and co-operatives R3,0 billion (16%). Debt outstanding to government accounted for only R435 million (2%) while loans from private persons accounted for R1,5 billion – 8% of total farming debt outstanding. In terms of the provincial debt patterns in 1996, commercial banks accounted for the highest proportion of the outstanding farming debt of farmers in Western Cape (41%) and Mpumalanga (43%). Co-operatives accounted for 29% of farming debt outstanding in North West and Mpumalanga.

The level of outstanding farming debt is directly related to the market value of farming assets such as land and improvements, vehicles, machinery and equipment, and animals and poultry. According to the results of the agricultural surveys of 1994-1996, the market value of such assets in the commercial farming sector rose from R60,4 billion in 1988 to R78,3 billion in 1996. 

Figure 62: Farming debt by type of creditor, 1996

Figure 62: Farming debt by type of creditor, 1996

Figure 63 shows the debt profile of the commercial farming sector relative to the market value of farming assets. The ratio of farming debt to assets rose from 17,4% in 1988 to 25,2% in 1991 and then declined to around 24% in subsequent years.

The provincial pattern of debt/asset ratios in the commercial farming sector varies markedly. For example, in 1996, the debt/asset ratio was 18,5% in Mpumalanga and over 25% in North West (26,9%), Free State (30,3%) and Northern Province (33,1%).

 Figure 63: Farming debt to assets ratio in the commercial sector, 1988-1996

 Figure 63: Farming debt to assets ratio in the commercial sector, 1988-1996

Summary

The sales and expenditure pattern of commercial farmers reflects the large-scale nature of their operations compared with the farming activities of households in the former homelands that are predominantly small-scale and of a subsistence nature. In terms of gross income from the sale of agricultural products, the annual commercial agricultural surveys indicate that commercial farmers earned R32,9 billion in 1996. Of this, R13,2 billion (40%) was from the sale of animals and products and R8,5 billion (26%) was from the sale of field crops. By comparison, among the households in the former homelands that sold livestock in the 12 months prior to the rural survey of 1997, 50% earned incomes of R1 000 or less; among the households that sold field crops, 44% earned R200 or less.

The annual commercial agricultural surveys also suggest that expenditure in the commercial farming sector has been on a steady upward trend since 1988. Although capital spending has increased over the eight years to 1996, it only accounted for 16% of total spending in 1996 (excluding salaries and wages).

Nonetheless, and reflecting the capital intensive nature of commercial farming operations, equipment such as tractors, milking machines and harvesters accounted for the largest share of the capital budget. By comparison, in the former homelands, the rural survey conducted in June 1997 indicates that the pattern of expenditure among households that were engaged in farming activities was markedly different in scale and in composition. Given the subsistence nature of farming activities and the miniscule areas under cultivation, 98% of households in the former homelands that were engaged in farming activities spent nothing on buildings. Among those households that purchased equipment, 78% spent R100 or less in the 12 months prior to the rural survey, most of which was for the purchase of hand-held tools.

In terms of farming debt, commercial banks were the single largest creditor of farmers in the commercial sector, accounting for 37% of the R18,9 billion farming debt outstanding in 1996. But while the level of outstanding debt has risen steadily since 1988, so too has the market value of farming assets. As a consequence, the debt to assets ratio has remained at an average of around 24% since 1990.

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