Headwinds lie ahead for South Africa’s agriculture sector, with the likely return of the El Niño climate pattern later this year adding to worries about rising fuel and fertiliser costs due to global geopolitical tensions.
The industry — which accounts for 2.5%-3% of GDP — has performed well in recent years despite logistics constraints and biological risks, but a convergence of geopolitical tensions, higher energy prices and climate risks is dimming the outlook for producers, exporters and agribusinesses, global trade credit insurance company Coface said on Monday.
The country remains vulnerable mainly through higher prices rather than supply shortages, with inflation and tighter credit weighing on agricultural investment.
“Rising fuel and fertiliser costs are emerging as the main pressure points, squeezing farm margins and increasing uncertainty for producers and agribusinesses,” Coface said.
“The likely return of El Niño later in 2026 raises downside risks to agricultural output into 2027, despite the sector’s underlying resilience.”
Estimates from the International Research Institute for Climate & Society suggest a more than 70% probability of the occurrence of El Niño in 2026-2027, which in extreme cases brings a harsh drought that could have a severe effect on summer grains, oilseeds, fruit and vegetables.
Higher fuel prices are expected to feed into inflation this year, particularly through transport, all but erasing the scope for the South African Reserve Bank to cut interest this year.
Last week, Bank governor Lesetja Kganyago said the Bank would keep a vigilant watch on the second-round effects of the fuel price shock and hinted it might in fact have to raise rates to “sustain low and stable inflation and all the benefits that brings”.
Tighter financial conditions mean that credit availability and borrowing costs are likely to remain elevated, affecting investment and working capital across the agricultural sector, Coface said on Monday.
It singled out the livestock sector as continuing to face pressure from disease outbreaks, biosecurity concerns and rising feed costs.
Though South African agriculture remains fundamentally resilient, the balance of risks has clearly shifted, it said.
“The convergence of global conflict, higher financing costs and climate uncertainty introduces a more demanding operating environment, particularly towards the end of 2026 and into 2027,” it said.
“The key challenge for the sector is no longer simply growth, but managing volatility, protecting cash flow and navigating risk across increasingly complex value chains. In this context, economic insight, scenario planning and proactive credit risk management become essential tools for sustaining performance in an uncertain global landscape.”
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