Causes of bankruptcy amongst commercial farmers in South Africa : management and policy implications.
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Date
1997
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Abstract
The number of commercial farms declared bankrupt in South Africa rose sharply over the
period 1948 to 1994. Aggregate farm bankruptcies rose from 18 farms (0,016 percent of all
farms) in 1948 to 389 farms in 1994 (0,632 percent of all farms). The number of bankrupt
maize farms increased from 16 to around 150 farms per year over the period 1970 to 1994,
while the number of bankrupt extensive beef farms increased from 12 to about 50 per year
over the same period. The objective of this study is to analyse factors affecting bankruptcies
of aggregate farm bankruptcy during 1948 to 1994 maize and extensive beef farm bankruptcy
from 1970 to 1994.
Possible causes of farm bankruptcy include both business and financial risk factors. Business
risk factors (inherent in a business and its operating environment, regardless of the way the
business is financed) include drought, fluctuations in producer prices and changes in real
government subsidies to agriculture. Financial risk factors (associated with debt financing)
are reflected by variable real interest rates and the level of the aggregate farm debt/asset
ratio. Principal components regression confirmed a priori theoretical expectations of farm
bankruptcy determinants.
The aggregate farm bankruptcy rate was positively related to the lagged aggregate farm
debt/asset ratio and lagged real interest rates (financial risk factors), but negatively related
to a lagged drought index (lower index values reflected drought) and lagged real government
subsidies to agriculture (business risk factors). Maize and extensive beef farm bankruptcies
were negatively related to lagged annual rainfall (business risk factor), but positively related
to the lagged aggregate farm debt/asset ratio and lagged real interest rates (financial risk
factors). Lagged real maize and beef producer prices (business risk factors) were negatively
related to bankruptcy among maize farmers. Beef farm bankruptcies rose with lower lagged
real beef producer prices and higher lagged real stockfeed subsidies and transport rebates
(business risk factors).
These results show that farm bankruptcy in South Africa is a dynamic process, with time lags
between business and financial risk factors and ultimate farm bankruptcy. The aggregate,
maize and extensive beef farm bankruptcy models also suggest that the rise in farm
bankruptcies over time can partly be attributed to changes in agricultural price and
macroeconomic policies.
Description
Thesis (M.Sc.Agric.)-University of Natal, Pietermaritzburg, 1997.
Keywords
Bankruptcy--South Africa., Farmers--South Africa., Agriculture--Economic aspects--South Africa., Beef cattle--Economic aspects--South Africa., Corn--Economic aspects--South Africa., Theses--Agricultural economics.