“Just as fertile soil and favourable weather conditions are essential for a bountiful harvest, a strong foundation of financial knowledge and skills empowers farmers to navigate the complexities of managing their resources effectively. From budgeting and cash flow management to grasping the nuances of investment and risk mitigation, financial literacy and planning are crucial for sustainable success in the agricultural sector.
Bezuidenhout explains that farmers must contend with natural disasters posing existential threats, particularly those who cannot afford insurance to transfer this risk. Adding to this is the unpredictability of seasonal and variable income.
"There’s no regular income in the farming space; it’s seasonal. Additionally, farmers are at the mercy of market forces, with prices for their products fluctuating daily based on supply and demand dynamics. They must strategically decide when to sell and hold back their produce to optimise returns."
He says farmers must, therefore, manage the disconnect between their irregular income and regular expenses, such as salaries, electricity, and vehicle payments. "Within that seasonal and variable income, you still need to match provision for monthly production costs because your costs are not seasonal. Navigating this complex web of challenges requires astute financial planning and cash flow management skills to ensure long-term sustainability and resilience."
Bezuidenhout says financial planning is a crucial financial literacy component for farmers, particularly those with mature and established businesses. He says while financial literacy focuses on fundamental skills like cash flow management, budgeting, and risk transfer, financial planning involves more sophisticated considerations around business structuring, asset protection, succession planning, and exit strategies.
"It's important to acknowledge that many farmers are already quite financially literate and adept at planning strategically. The more sophisticated farmers that have gone through a mature cycle in their business need financial planning in the sense that now we are working with legal structures, how to protect your assets, how to make provisions for exiting the industry, and what the succession plan should look like.”
Bezuidenhout adds that seasoned farmers can optimise their business structures for tax efficiency, mitigate risks, and ensure a smooth transition when the time comes to pass the reins to the next generation by engaging in proactive financial planning with the support of advisors and legal consultants.
While the specific financial literacy and planning needs of farmers may vary based on factors such as the scale of their operations and their level of experience, several aspects are universally important:
Budgeting and cash flow management: Effective budgeting and cash flow management are essential for farmers to navigate the seasonal nature of agricultural income.
Risk management and insurance: Agriculture is inherently risky, with farmers vulnerable to various threats, from adverse weather conditions to market volatility. Financial literacy empowers farmers to understand and manage these risks through insurance to transfer risk.
Investment decisions and capital allocation: Farmers must make complex investment decisions, from acquiring new equipment and technology to expanding their operations. Financial literacy enables farmers to evaluate the potential returns and risks associated with different investment opportunities and to allocate their capital.
Succession planning and business structuring: Financial literacy and planning also encompasses the intricacies of succession planning and business structuring for established farmers.
Despite the clear benefits of financial literacy and planning, many farmers face significant challenges and barriers in accessing the necessary education and resources. Bezuidenhout identifies a considerable gap in the market from the formal education platforms due to the lack of targeted short courses and programmes from tertiary institutions.
He says Sanlam, for example, has focused on grassroots initiatives to bridge this gap, working directly with local farmer unions and agricultural organisations to provide on-the-ground financial literacy training and resources. "We decided that we're going to focus more on where we can see the end-user, and that's the farmer through the local farmer union. Our advisors and legal consultants get involved to speak to these farmers about investment decisions, financial planning, and financial literacy," explains Bezuidenhout.
In the agricultural landscape, financial literacy and planning are not just a desirable skill – they are necessities for farmers to flourish in an increasingly complex and competitive environment.
Bezuidenhout shares how improved financial literacy and strategic investment decisions transformed a rural cattle farmer’s business, empowering him to invest around R25,000 in better genetics for his herd.
“By selecting a superior bull and focusing on genetic quality rather than mere quantity, the farmer could dramatically improve his calves' weight gain and market value. This strategic investment decision, guided by a deeper understanding of the factors driving profitability, boosted the farmer's income and expanded his market opportunities. Whereas previously, buyers had bypassed his farm due to inconsistent quality, they now actively sought out his superior cattle.”
Bezuidenhout concludes: "By equipping farmers with the knowledge and tools to make informed financial decisions, we can foster a resilient and prosperous agricultural sector that continues to drive economic growth and social upliftment.”
