Standard Bank partners with citrus to build balance sheet resilience

Standard Bank’s sponsorship of the Citrus Growers’ Association of Southern Africa (CGA) Summit since its inception in 2017 reflects the bank’s long commitment to South Africa’s citrus sector.

Over the past decade, Southern Africa’s citrus industry had expanded hectarage, added new cultivars and technologies and built the structures to promote and ship product globally. Thanks in large part to these efforts, South Africa is today the world’s secondlargest exporter of citrus, after Spain.

Despite this growth, Southern Africa’s citrus sector is currently facing tough times. “Global supply chain disruptions and market volatility, domestic logistics decay and increased shipping costs have combined with energy constraints, phytosanitary challenges and climate impacts, all of which present formidable threats to solvency in the sector,” says Nico Groenewald, head of agriculture (SA) at Standard Bank.

The CGA was established in 1997 to represent the interests of the producers of export citrus. The CGA Summit is an opportunity to unite as a community, and focus on “how to ensure financial sustainability by building balance sheet resilience in tough times,” explains Groenewald.

OPTIMISM AND DISCIPLINE

When market conditions turn, the golden rule is to balance optimism for the future with a disciplined approach to maintaining balance sheet stability.

“Growth strategies that are too fast, too large, and too one-dimensional often result in depressingly high and unsustainable costs over time,” says Groenewald.

Instead, the size, intervals and time-frames on which investment decisions are made today should also hold in less favourable cycles.

This is especially so in agriculture, which by its very nature is unpredictable. Since uncertainty equals risk, “agricultural production needs to build risk resilience into long-term plans so balance sheets can retain their relevance under less favourable conditions,” says Groenewald.

By balancing growth with hurdle profitability rates (the minimum rate of return required for a company to move forward on a project) producers will be in a stronger position to leverage the next big growth opportunity when the cycle turns.

Groenewald believes it is in difficult times that the best decisions are made.

Certainly, at the individual farm level much can be done to mitigate adverse external conditions in negative cycles.

On-farm efficiencies, and, especially, cost management and targeted capital expenditure, can be refined. Where needed, cultivars can be replaced.

One certainty in agriculture is that it is cyclical. Just as citrus producers have been under balance sheet pressure for the past two seasons, “we can be certain that in time things will improve”, says Groenewald.

Both change and growth require funding. This is where banks can help. By viewing both tough and good times as opportunities to make the right decisions, “producers can position themselves, regardless of where we are in the cycle, to manage ongoing challenges and capitalise on opportunity when the fundamentals improve”, he adds.

ACTING FAST

The moment cash flow becomes a challenge, it’s essential to “reassess quickly so you can continue to grow and invest in the right things”, says Groenewald.

Every citrus producer should have a clear view of the balance sheet ratio they need to achieve now to maximise the next positive cycle.

Understanding that a healthy balance sheet doesn’t only deliver profits, but also “optimises cash flow through disciplined cash management in line with a strictly enforced recovery strategy is critical to saying no to opportunities that don’t support that strategy”, says Groenewald.

The current situation also highlights the need for producers and the wider citrus value chain to broaden their frames of reference. The sector needs to take energy availability and costs into account, both for itself and for its broader value chains, especially transport, logistics and energy-vulnerable pack houses.

COLLABORATION

Broader systemic challenges are best tackled through collaboration, working through organisations such as the CGA and its research associations, and financial service providers. In addition, most large banks can “assist producers with the crafting of integrated long-term balance sheet strategies sufficiently disciplined to support resilience and sustain through-the-cycle growth”, says Groenewald. –

PIXABAY Over the past decade Southern Africa‘s citrus industry has expanded exponentially, increasing hectarage from 60 355ha in 2012 to 99 697ha in 2022, according to the Citrus Growers‘ Association.