South Africa’s largest banking group Absa seems to have more appetite for the agricultural sector if the words of Absa Agribusiness Head Ernst Janovsky are anything to go by.
Janovsky said agriculture continued to be an important economic sector because of its contribution to food supply, the country’s trade balance, employment, supply of raw materials and its value as a market for other sectors.
“It is the right time to invest in agriculture because the Net farm Income (NFI) has increased substantially over the past decade. Property value of farms is expected to continue to grow by 10-12% per year. Debt to asset ratios has improved substantially over the past decade and turnover to debt ratios are constantly improving,’ he said.
However, Janovsky point out that for the farmers to survive they needed to become more productive by increasing their output in relation to their input. This is mainly done by improving Storage technology, transport, Information technology, Biological farming practices, Genetic technology and Economy of scale.
“Farming enterprises will therefore continue to grow in size and consolidation will continue within the agricultural industry”.
Janovsky was commenting around the relationship Absa has with the agricultural machinery and equipment manufacturers John Deere South Africa.
Absa Vehicle and Commercial Asset Finance (AVCAF) reported last week that its commercial partnership with John Deere South Africa, have exceeded market expectations by reaching R1bn in financial transactions in less than 10 years.
In August AVCAF entered into a joint financial alliance with John Deere’s financial arm with an aim of making its asset financing offering broadly accessible in the commercial segment, including and especially the Agri-business sector.
Commenting at the celebratory breakfast Wessel Steffens, Head of Absa Vehicle and Commercial Asset Finance, said the success of the alliance and John Deere’s book performance was underpinned by several factors which included a dedicated and efficient credit routing process that assured quality assessment standards, and easier “time to decision”.
“A highly motivated and committed team assigned to the alliance and active participation and presence at all renowned farming events and activities helped to reached this remarkable milestone. Our compelling financing customer proposition is what gives our business the edge and further entrenches our position as the market leader in agricultural finance,” said Steffens.
“Similarly, through a customer-driven approach we capitalise on existing Absa Group-wide agricultural capabilities and customer interfaces to provide the best coverage and deliver an unsurpassed customer experience and ensure that we make our customers’ lives much easier.”
Steffens said the John Deere Financial book has the least impairments in the asset based environment with well conducted accounts with the lowest default rate and the highest market share in excess of 45%, with the next competitor being cash.
“This demonstrates our ability to significantly support the farming industry with financing that enables them to grow their businesses thereby impacting positively to the South African economy,” said Steffens.
Thrilled with reaching the R1bn mark, Len Brand, Managing Director, John Deere Sub-Sahara Africa, said it was certainly the right decision to partner with Absa as it is regarded as the market leader in agricultural finance.
“As a premium brand, John Deere manufactures assets ranging from tractors, planters, harvesters, balers, sprayers, combines, skid steers and front loaders. Finance for these assets is done through credit agreements which include instalment sale agreements, financial lease agreements, and operating lease agreements,” said Brand.
John Deere has direct relationships with reputable Dealers which include Afgri, one of South Africa’s leading Agricultural Services and Food Business; Senwes, another leading Agribusiness client; Agrico – distributor of John Deere Products and Mascor which has franchised dealerships of agricultural equipment also distributes these products.