Many black smallholders and emerging farmers struggle to access critical finance to grow their businesses. The result is persistent inequality in the agricultural sector. What can be done to make it more inclusive?
Farming, like any other business, requires adequate start-up capital to finance production, manage risks, and expand operations. Access to credit is associated with larger farms, greater productivity, and higher farm income. Yet many black smallholders and emerging farmers struggle to access credit. This imbalance reflects persistent structural challenges that continue to limit the participation of black farmers in the mainstream agricultural economy.
In South Africa, the total value of agricultural debt owed to financial institutions exceeds R200 billion. This level of investment plays a vital role in enabling farmers to purchase seeds and fertilizers, adopt modern technologies, process, package and market their products and scale up their enterprises.
A study of smallholder farmers in KwaZulu-Natal and Mpumalanga by agricultural economists nomonde jonas And Mazuyanda Christian found that loan approval was associated with an increase in farm size by approximately 55.5 hectares and an increase in farm income of approximately R2.9-million. Access to credit is therefore not a luxury, but a fundamental pillar of a productive and competitive agricultural sector.
However, access to agricultural finance remains highly unequal, with established white commercial farmers receiving the largest share.
One of the most significant hurdles is the issue of collateral. The same study of small farmers found that “farmers who owned land were 1.84 times more likely to have their loan applications approved than those who did not own land.”
However, many emerging farmers, especially those who have benefited from land reform programs, do not have formal land titles or title deeds that can be used to secure loans. Without collateral, financial institutions are reluctant to grant loans regardless of the farmer's production capacity. Furthermore, poor or non-existent record-keeping further weakens the ability of farmers to demonstrate financial performance and repayment capacity. Financial literacy also remains a concern, with many farmers lacking the knowledge and skills needed to effectively manage loans and confidently engage with lenders.
It also has a cultural dimension. Farmers often shy away from taking loans. Many people prefer to rely on personal savings or work within the limits of available cash. Of the 223 small farmers interviewed in the study by Jonas and Christian, only 62 had applied for a loan at a large bank or land bank, and even fewer, 11, had successfully obtained the loan.
Another study of agricultural credit markets found that “fewer smallholder farmers seek loans from commercial banks than from informal lenders (savings clubs, friends, cooperatives, families, government)”. While this approach can reduce the risk of financial risk, it can also hinder growth and limit opportunities for expansion. In a capital-intensive sector like agriculture, relying solely on individual wealth is rarely sufficient to sustain long-term growth.
Emerging farmers, especially those involved in land-reform projects, face complex challenges. Many do not keep detailed production records or separate agribusiness accounts. As a result, they struggle to obtain loans not only from commercial banks but also from state-owned institutions such as the Land Bank. Without proper documentation and financial systems, it becomes difficult for lenders to assess risk and provide appropriate assistance.
Encouragingly, innovative approaches are emerging within the private sector. During recent visits to 18 relatively successful land-reform farms across the country in 2025 as part of a collaborative project between the Agricultural Research Council and the Department of Rural Development and Land Reform, some encouraging practices were observed. The two most successful farms we visited took advantage of private savings or commercial finance as well as government support to achieve mechanization, market integration and financial reliability. In areas such as Mooi River in KwaZulu-Natal, farmers reported that private agribusiness companies such as TWK are providing production inputs on credit to their loyal customers. These farmers receive seeds, fertilizers and other necessary inputs at the beginning of the season and repay the costs after harvesting and selling their produce. Another sensible initiative is the Buhle-Mondi Farmer Development Project, where small farmers receive thorough training on technical farming aspects as well as record keeping and financial management, after which they are given loans at less than 4% interest and repaid in three years.
These and similar initiatives represent an important step toward improving access to finance for emerging farmers. They are built on trust, long-term relationships and a clear understanding of production cycles. Importantly, they also allow farmers to build a credit history that can eventually open doors to more formal financial services.
Apart from improving access to finance, these initiatives also contribute to the development of the wider sector. They reduce pressure on government assistance programs such as the Comprehensive Agricultural Support Program (CASP) and blended finance schemes, which are often overextended and unable to meet the growing demand for aid. Also, they encourage farmers to develop better financial discipline and cash flow management practices.
The role of government assistance, while essential, should be carefully considered. Grant-based assistance has played an important role in supporting farmers, especially in the early stages of land reform. However, this can sometimes lead to unintended consequences, including dependency and a sense of possessiveness. This has been observed in various contexts, where farmers become dependent on external support rather than creating self-sustaining enterprises. In 2003 the government subsidized maize production through a large-scale food production program aimed at reviving arable farming in former domestic areas. The government paid about 60% of the total cost of maize and small farmers paid the remaining 40%. The program ultimately was unsustainable, however, as it collapsed as government support ended, leaving many farmers in debt.
To make South Africa's agricultural sector more inclusive and dynamic, farming must be understood not only as a means of producing food, but also as a business that requires strategic investment, financial planning and constant reinvestment of profits. Access to credit, when used responsibly, can serve as a powerful tool for growth and change.
Emerging farmers need assistance in developing essential financial management skills, maintaining accurate records, and understanding the benefits and risks associated with loans. At the same time, financial institutions and agribusinesses must continue to develop innovative models that accommodate the realities these farmers face.
Ultimately, closing the agricultural finance gap is not just about increasing access to credit. It is about creating an enabling environment where all farmers, regardless of background, have a fair opportunity to participate, grow and contribute to the economy. By combining practical support, financial education and inclusive financing models, South Africa can move closer to a more equitable and prosperous agricultural future.
Written by Sife Zantsi, Econ3x3