Evaluating grain producers' production financing alternatives: evidence from South Africa

Abstract

PurposeThe purpose of this paper is to identify, present and compare agricultural production financing alternatives available to grain producers in South Africa. From the South African perspective, agricultural land cannot always be utilised as collateral and therefore alternative financing has developed.Design/methodology/approachThe study makes use of an exploratory study by applying qualitative techniques. The research population was agricultural finance providers in South Africa and semi‐structured interviews were conducted with representatives of the sample.FindingsThe production financing alternatives identified and presented include: grain contract financing; grain contract financing with additional collateral; and corporate farming. A comparison of these alternatives indicates that although the traditional balance sheet financing is a cheaper form of financing, using agricultural land as collateral has a number of limitations, especially within the South African context.Practical implicationsUsing agricultural land as collateral to obtain production financing is not always viable considering the present South African agricultural environment. Commercial grain producers should therefore consider the identified alternative production financing.Originality/valueLimited research on agricultural production finance from the South African perspective has been performed. Furthermore, no previous research on identifying production financing alternatives without utilising agricultural land as collateral has been performed. This paper therefore provides new knowledge by combining South African practice with theory.