eBusiness Weekly
One in five farmers in South Africa plans to leave the sector in the next decade, research shows.
Stellenbosch University PhD graduate Kandas Cloete’s research, Investigating farm-level exit decisions and exit rates in commercial agriculture in South Africa, an agent-based approach, looks into the various reasons farmers plan to leave the sector. The National Research Foundation funded the research.
While this area of research has been covered extensively in the past, Cloete was interested in future trends for the sector. She also considered the driving factors for a producer staying or leaving the sector.
Cloete surveyed 450 participants – some of whom had plans to expand, others wanted to maintain operations, and others planned to exit the sector.
Ultimately, Cloete shows there is a projected exit rate of 20 percent (one in five farmers) over 10 years.
This excludes producers who expect the next generation to take over their farms. “If a constant exit rate per year is assumed, using simple arithmetic shows that this potentially could result in an average annual exit rate of 2 percent,” the paper read.
The decision to exit is personal and linked to a combination of factors such as investment costs, financial constraints, and a producer’s age.
Other factors flagged in the research include access to dependable labour, uncertainty about land reform, rural safety concerns and retirement without succession plans (having children or family members take over the farm).
“It is typically a combination of different factors that determines the decision to quit farming and sell the property,” said Cloete.
Cloete’s research groups producers into four clusters – based on their perceptions of the challenges and threats to their operations and how that affects their decisions to exit farming or continue. The clusters are: ambitious producers, remainer producers, retriever producers and persistent producers.
The least amount of farmers that want to exit farming are found in the remainer cluster.
The remainer cluster accounts for about a third (30 percent) of the surveyed participants, only 4 percent expect to leave farming in the next 10 years.
The ambitious producer and persistent producer clusters account for 30 percent and 26 percent of the sample, respectively. For both clusters, 13% of the producers intend to leave farming in the next 10 years.
The retriever producers account for 14 percent of surveyed participants. Most of the producers that planned to exit farming are in this cluster. About 85 percent intend to exit farming in the next 10 years.
The retriever cluster is mainly made up of small producers. Nearly half of the retrievers (41 percent) recorded annual revenue of less than R10 million – this was the case for only 29 percent of respondents in the other clusters, the report indicated.
When it comes to assessing problems faced, these producers gave higher ratings than the other three clusters regarding accessing dependable labour, uncertainty regarding land reform policy and rural safety concerns.
The study shows that the remainer and the retriever cluster of farmers gave the highest ratings for external threats such as natural disasters, uncertainty of land reform and rising input costs. In contrast, the ambitious and persistent clusters of producers are seen as “better positioned” to absorb or avoid or prevent these threats — possibly due to their financial resources.
About two-thirds of producers of the sample recorded annual revenue of more than R100 million – and they were classified in either of these two clusters. The report suggests that larger turnover could play a role in getting farmers to stay in the sector.
“Although a link between planning to exit and turnover could not be established when splitting the turnover at R10 million per annum, it appears that larger turnover could indeed play a role in the intention to stay.”
– Dr Kandas Cloete
When it comes to the impact of education – the study indicates that education levels and “off-farm” earning potential can influence a person’s occupation before they enter the agriculture sector, and it can also influence their decision to stay or exit the sector.
“For the ambitious cluster, producers are building up bigger revenues after coming into primary agriculture as a second career after working elsewhere first,” the paper read. Whereas for the retriever cluster, a lack of a bigger revenue or prospects for profitability could drive them to leave, this was seen in other countries like New Zealand, Argentina and Uruguay.
The report suggest and business confidence levels may also influence a farmer to stay.
Barriers to exit
Production loans may act as a barrier for producers to leave farming as they are bound to repay them.
Age can also act as a barrier for exit. “… Producers aged 45 to 65 are more likely to stay than those in the age brackets of 30 to 45 and older than 65 age brackets…” the paper read. This indicates those aged between 45 and 65 have a lack of opportunities to exit voluntarily – either for a new job opportunity outside farming or to sell one’s farm to retire.
According to Cloete, the average producer likely to exit farming is a third-generation, 54-year old individual with 26 years of experience and has a college qualification or university degree.
“This producer is typically still repaying long-term loans while also using production loans and other types of debt capital.”
Given his financial constraints, and a lack of business confidence, his financial strategy is to contract operations. “…Managing multiple loans while planning for retirement remains a challenge [for the producer],” she said.
Cloete grew up on a farm in Laingsburg, Western Cape, and her occupation is also linked to agriculture – she currently works at the Bureau for Food and Agricultural Policy as a senior analyst. – fin24
