SA’s wheat farmers weigh production cuts as Iran war bites

South African wheat farmers could be among those hit hardest by the war in Iran, forcing farmers to cut back on production as low commodity prices make the sector particularly vulnerable to inflation, warned KAL Group.

The JSE-listed agricultural investor, owner of Agrimark, said in its latest interim results that wheat growers were already weighing cuts to planted hectares for the coming season as they brace for a painful margin squeeze from surging fuel and fertiliser costs.

“Fuel availability was severely constrained in March. Fuel demand increased exponentially, as both agricultural and general consumers increased fuel purchases in anticipation of potential fuel shortages and the large April fuel price increases,” said the group.

“Increased fuel and fertiliser input costs will put pressure on farmer profitability and cash flows, and indications are that wheat farmers may plant fewer hectares during the upcoming season.”

The warning carries particular weight in a country in which bread is a cornerstone of food security. In lower-income households in particular, any increase in the price of a loaf will be felt.

Grains are among the crops which are most reliant on fertiliser and thus are disproportionately affected by price shocks. In South Africa, these are almost entirely external, with about a third of fertiliser ingredients coming from the Middle East and 80% from outside the country.

Across the agricultural sector, the war in Iran has disrupted supply chains and boosted input costs at a time when the industry had only just cleared the turmoil of US tariffs

For wheat farmers, subdued commodity prices and below-average rainfall last year have added to these woes. KAL said the yields of its suppliers were already coming in short of expectations in the six months to end-March.

Export fruit farmers are also expected to see their supply chains and markets weakened by the softer US dollar and uncertainty surrounding Middle East tensions, while potential interest rate increases may constrain farmers’ abilities to invest in new equipment and withstand the margin pressure.

Across the agricultural sector, the war in Iran has disrupted supply chains and boosted input costs at a time when the industry had only just cleared the turmoil of US tariffs.

KAL warned that inflationary pressure and possible rate hikes might affect the remainder of its financial year, but assured investors that the short to medium term impact would not be significant.

To tide them over, the company raised its gross interim dividend by a quarter compared with last year to 70c a share.

The group’s results for the first half, which do not reflect the impact of the Iran war, reflected a strong financial performance amid a more stable economic outlook in South Africa, with revenue up 5% year on year at R11.36bn.

Earnings before interest, tax, depreciation and amortisation were up 7.7% at R599.7m, supporting a 15% jump in headline earnings per share to R4.53.

The company cited a favourable macroeconomic environment and a more stable outlook as interest rate cuts and progress on structural reforms in electricity and logistics, as well as South Africa’s removal from the Financial Action Task Force’s grey list, buoyed sentiment.

“The first six months of the current financial year showed signs of gradual economic improvement in South Africa, with a more stable macroeconomic environment, lower inflation and moderate growth prospects compared with recent years,” it said.

“Progress under Operation Vulindlela, including improvements at Eskom and Transnet and SA’s exit from the FATF grey list, as well as a sovereign credit rating upgrade, helped stabilise the economy.”

Business Day