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New lender enters South Africa’s agriculture sector

New lender enters South Africa’s agriculture sector

AgMerchant Capital – a new credit provider focusing on supporting the local agricultural value chain was launched last week, with former Agri boss Chris Venter leading the charge.

The new company said in a statement that it “aims to provide the entire value chain with financial support, backed by innovative, digitised, and long-term sustainable financial services solutions”.

AgMerchant forms part of a group of companies founded by Sovereign Capital Holdings of which Venter is the founder and executive director. The group also includes AgMarket – an online e-commerce platform for farmers that already offers more than 400 000 products, which the company said it would expand to eventually include all products required by farmers to produce food.

The online retailer sells everything from animals and livestock to equipment and machinery.

Venter, who has long shown a passion for promoting food security, said that the South African agricultural industry is critical to the continued growth of the economy, as well as to food security and job creation.

In an interview with Business Report, he said that the link between finance and food security is that it enables a big part of the agri value chain, ranging from the moment the farmer harvests his/her crops up to when the end-consumer buys the finished product at a local retailer. “Generally, the retailer will ask for credit terms, and so also the processing plant, and initially the producer needs production credit as well,” he said.

Venter said AGMerchant is not there to replace traditional financing methods, but to rather add liquidity to a very cyclical market. “We add value by managing credit along the entire value chain,” he said.

“We believe there is room for a financier that understands the cyclicality of the industry and an entity that can finance the flow of the commodity rather than just relying on the strength of the balance sheet of the farmer. It is therefore our intention to provide the entire agricultural value chain with financial support to assist the sector in receiving the support it needs to grow and thrive,” Venter said.

Changes in the agricultural finance landscape – some of which were brought about by the Covid-19 pandemic over the past three years, as well as the longer impact of climate change support this viewpoint.

The Landbank has also repositioned its value proposition over the past few years.

Venter said agricultural finance tends to track cyclical tendencies. “Agriculture tends to become attractive during periods of doom and gloom, and continues to do well when the weather plays along.

“During the negative cycle, the banks become more risk averse in its funding strategies,” he said.

Agriculture makes for only a portion of a bank’s balance sheet, he said. “AgMerchant’s value proposition speaks to the underlying asset it is financing, whether an asset or commodity. We don’t not take a blended approach,” he added.

Venter said he has no issues with the Landbank of the traditional banking sector, and believes they have an important role to play.

“The Landbank is making good strides since the appointment of its latest executive," he said.

AgMerchant said in its media release that it was established with a long-term investment focus and an understanding of the importance of food certainty in South Africa, which Venter said refers to the investor, however “our products are very similar in its offering”.

“The way a tractor is financed will not change,” he said, “but we strongly believe in the digitisation of the value chain, and the way farmers access the capital and capabilities of what they do.

Venter indicated that the relatively small but extremely nimble company will be able to quickly react to what clients in the sector need, with efficient decision-making that can assist those who need rolling financial support.

He added that it is important that the right team is in place – who are qualified and have the relevant experience – who not only understand banking and finance but also have many years’ experience in the agricultural market. “We add value in the ability to assess the risk of the market- related cycles, but also that of a specific commodity,” he said.

Venter said the agricultural sector is critical to the well-being of South Africa, not only in pursuit of enabling job creation but also for food security, and the ability to earn forex for the South African fiscus.

“The sector has a history of producing and exporting quality produce, and in some instances massive quantities are supplied to processors to ensure food security for the country.

BUSINESS REPORT

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