Skip to main content

Impact of possible interest rate hike on agriculture and SMEs

| Economic factors

A further hike in interest rates, whether it takes effect now or later during the year, would put more pressure on consumers, leaving businesses with no choice, but to absorb costs in the short-term as profit margins continue to shrink.

 Dawie Maree, Head of Information and Marketing at FNB Business, Agriculture
Farmers that are still recovering from the impact of the drought would be hardest hit by a hike in interest rates given that the electricity tariff increase and tyre levy are coming into effect in April and October respectively.
With profits under pressure and cash reserves gradually depleting, the ability to manage farm operations while servicing debt and keeping up with employee wages will take its toll on farmers. The impact would likely spread across the entire agricultural value chain with meat consumption heavily affected as struggling consumers cut back on spending and opt for lesser expensive sources of protein.
Furthermore, if the price of meat continues to increase, there will be a push back from consumers who will avoid eating out, directly affecting restaurants and retailers.
Yudhvir Seetharam, Head of Analytics at FNB Business
Apart from the direct impact on SMEs’ cash flow and ability to service debt, interest rate increases hamper consumer confidence, their ability to spend and save, which ultimately has a direct impact on the bottom line of small businesses. 
As economic conditions continue to get tougher, small businesses that are eager to drive sales will start competing for the attention of consumers who are already cutting back on spending.
Efforts will have to be placed on offering customers value for money by making sure that products and services satisfy their needs. Although many SMEs opt to cut back on branding and marketing during tough times, this decision will have to be carefully considered as competitors may use the opportunity to gain a competitive edge by aggressively promoting their offerings.
Furthermore, in an attempt to win over more customers, SMEs must avoid making costly pricing mistakes. For example, if products are priced too high, there is no doubt that consumers will look for an alternative. On the other hand, while lowering prices to attract customers may work in the short-term, it can backfire on the business in the long run, impacting on the business’ ability to maintain profitability.
A reprieve in interest rates would be welcomed by small businesses and farmers as they navigate economic headwinds and prepare for the tough times ahead

Pin It

Related Articles

By: Myles Illidge - MyBroadband Eskom has asked the National Energy Regulator of South Africa (Nersa) for a 36.15% electricity tariff hike for the customers it directly supplies and charges, Daily Maverick reports.
By: Yogashen Pillay – The Mercury Economists are predicting a big drop in petrol and diesel prices next month, saying it will bring much-needed relief to under-pressure consumers.
By: Jason Woosey - IOL Petrol and diesel prices are set to come down from Wednesday, June 5, according to a statement released by the Department of Mineral Resources and Energy (DMRE).
By: Opinion – IOL Business Report South Africans have been collectively waiting with bated breath for some small financial reprieve from the relentless price hikes of the past few years that have driven them to the brink of despair, chief among t...
Stats SA reports that retail trade sales increased by 2.3% year-on-year in February 2024. The largest contributor to this increase was general dealers (6.4% and contributing 2.8 percentage points).