Regulatory barriers and capital costs slow down dragon fruit production growth in South Africa

Access to financial resources remains a significant challenge for the agricultural and food sectors of South Africa; however, participants at the South African Food Future Conference in Centurion concluded that the difficulty is not simply a lack of capital.

The conference, organized by Food For Mzansi with support from Land Bank and South Africa Wine, gathered stakeholders to explore ways to improve support for farmers and businesses across the entire food system.

Robert Matsila, Head of Agricultural Banking and Support Monitoring at Land Bank, explained that the demand for the bank's products in land and financing was so high that it exhausted the grant component.

Matsila noted: 'The bank has exhausted the grant component for land and financing solely due to the high demand we observed.' He added that Land Bank is negotiating with the government about a possible increase in funds and is also considering how to use its own resources to support farmers during the critical grain sowing period in the summer.

'The bank will provide subsidized loans mixed with commercial loans so that farmers can continue planting,' he stated.

Risk Remains a Central Element of Financing

Deon Shepers, a lecturer in Agricultural Economics, Extension, and Rural Development at the University of Pretoria, argued that the main problem is not the availability of money, but the adequacy of risk solutions associated with agricultural investments.

'There is no doubt that there is enough money in the system,' said Shepers. 'Why isn't it going where it needs to go? The answer is risk.'

Shepers, who also deals with crop insurance and farming, emphasized that reducing risks could stimulate capital flow into parts of the agricultural sector where financing is currently difficult to obtain. He added: 'Money goes where it feels safe. And money goes where there is income.'

He also pointed to difficulties related to land rights and collateral, especially when farmers lack title deeds that could be used as security.

Financial Inclusion Requires Readiness

Quinton Naidu, Head of Socio-Economic Development at Kagiso Trust, reported that the organization received hundreds of applications for agricultural financing but returned some funds last year because it could not deploy them. 'The money is there. The problem is that the systems cannot accept the capital for risk reasons, for reasons we call readiness,' noted Naidu.

Kagiso Trust assesses applicants based on the so-called 'three Es': entrepreneur, enterprise, and ecosystem. He explained that some applicants had strong ideas and technical expertise, but their business was not yet commercially viable.

In response, the organization developed a readiness assessment system and a 'capital ladder' that includes readiness financing, subsidized loans, and other financial products to help enterprises ultimately gain access to mainstream commercial finance.

Developing Finance for the Right Business

Chatbert Kambandje, an expert in agro-food systems, investment, and policy at the regional office of the Food and Agriculture Organization of the UN for South Africa, stated that financial instruments must be designed considering the realities of small and fragmented agricultural enterprises.

He noted that financing tends to follow functioning systems, institutions, and information, whereas many risks facing agriculture are regional rather than confined to individual countries. Kambandje also questioned whether grants alone provide sufficient de-risking to attract commercial capital. 'Money is everywhere. But it doesn't move where it should because we are not mitigating the risk,' he concluded. He called for a combination of financial and regulatory tools, as well as closer regional cooperation, including investments along economic corridors.

Alternative Approaches to Agricultural Financing

Diale Tilo, Executive Director of Kgodiso Development Fund, reported that the fund considers enterprises across the entire food chain: from pre-production and farming to processing, manufacturing, packaging, transportation, and storage. Unlike traditional lending models, Kgodiso does not require physical collateral or equity contributions for the enterprises it finances and can cover 100% of the required amount, according to Tilo. However, enterprises must demonstrate the ability to generate sufficient cash flow to repay the capital and interest.

'Every business has a cycle,' Tilo explained, clarifying that this cycle can range from daily or weekly to annual for grain producers. 'We need to understand what exactly you do in this cycle to turn a product or service into money.'

He stressed that the key question is whether the business has enough free cash flow after covering operating expenses to meet repayment obligations. 'For us, if you are ready, act, and want to grow, you are a suitable business for discussion.'

Tilo also highlighted the scope of opportunities across the broader food system, asserting that investments should not be limited to farming or retail of food products. Opportunities extend to processing, manufacturing, packaging, transportation, and storage. He added that the sector represents a significant opportunity for entrepreneurship and job creation, but stronger business education programs are necessary.

While farm success was previously determined by weather and yield, in 2026, rising production resource costs are becoming a priority. Daniel Rossouw, Head of Agricultural Sales at Nedbank, analyzes the economic factors shaping South Africa's agricultural sector and offers producers strategic ways to protect their profits.

Successful farming operations rely on a careful balance of energy, labor, and raw material expenses, which is critical for business survival. Rossouw, with nearly 35 years of experience in agricultural finance, notes that the 2025–2026 period represents one of the most challenging economic landscapes for this sector.

Agricultural enterprises face not a single isolated factor, but cumulative cost pressure across several key areas. Rossouw explains that in 2026, the greatest pressure comes from combined resource prices, including energy, labor, logistics, and finance, rather than any single type of expense. He emphasizes that the severity of these issues varies greatly depending on the specific commodity.

Among the main resources, fertilizers stand out as a significant source of pressure, especially for grains, oilseeds, sugar, and horticulture. In standard grain systems, fertilizers account for 20% to 35% of resource costs, and significantly more in high-intensity operations. According to the latest estimates, fertilizer prices have risen by up to 50% compared to the same period last year.

Since South Africa imports over 80% of its fertilizer needs, local prices are closely linked to global trends in crude oil prices and exchange rate fluctuations.

Fuel presents similar difficulties. Diesel accounts for up to 15% of resource costs in grain production, and because about 70% of diesel fuel in the country is imported, farm expenses are directly dependent on global oil markets.

In addition to energy and fertilizers, other necessary operating costs are steadily increasing:

• Electricity and utilities: Although power outages have ended for an extended period, electricity tariffs continue to rise. This heavily impacts irrigated agriculture and high-value crops. While more farmers are investing in solar and alternative energy sources, such solutions require significant initial capital investment.
• Labor dynamics: This is particularly important in labor-intensive, high value-added sectors such as horticulture, viticulture, and sugarcane. Labor costs include not only rising base wages. Increases in the minimum wage, persistent shortage of skilled personnel, and variable productivity make these sectors especially vulnerable to margin compression.
• Crop protection: Active chemical ingredients are strongly tied to international commodity prices and the US dollar. Unlike optional farm expenses, reducing chemical use directly increases production risks, leaving little room for cost adjustments.

To cope with this pressure, Rossouw insists that producers must expand their financial monitoring beyond traditional metrics such as current commodity prices and local rainfall. Over the next twelve months, farm profitability will be determined by the dynamic interaction of macroeconomic forces.

He points to several critically important variables requiring close attention:

• Interest rates and inflation: Although potential rate easing offers hope for relief, persistent inflationary spikes could delay further rate cuts, sustaining high financing costs.
• Exchange rate stability: The Rand has recently shown strong resilience, but currency markets remain inherently volatile and require constant risk management.
• Geopolitical turmoil: Fuel, oil, and fertilizer markets remain highly sensitive to international conflicts and global supply disruptions.
• Climate change: Early signs and warnings of the El Niño cycle indicate increased production risks in the 2026 and 2027 seasons.
• Municipal and infrastructure overheads: Rising municipal tariffs, water costs, and localized power restrictions continue to limit expansion in high-growth and export-oriented regions.

Essentially, managing modern agricultural risks requires looking at the big picture and preparing for economic instability even before purchasing resources or sowing seeds. As market conditions change, it is crucial to collaborate with a financial partner who understands these macroeconomic shifts to maintain liquidity and structural stability.

To learn how Nedbank can become a partner to your agricultural business and support your strategic planning for the 2026–2027 seasons, contact business@nedbank.co.za or reach out directly to your regional Nedbank business manager.