Impact analysis of farming debt on gross value of agricultural production and its implication on economic growth in South Africa from 1990 to 2022

Abstract

This study examined the impact of farming debt on the gross value of agricultural production and its implications for economic growth in South Africa over the period 1990–2022. The study was motivated by the increasing dependence on credit financing within the agricultural sector and the need to determine whether rising farm debt supports production growth and contributes to broader economic performance. Annual time-series data were analysed using descriptive statistics, trend analysis, correlation analysis, and the Two-Stage Least Squares (2SLS) econometric technique to account for possible endogeneity between agricultural output and borrowing. The trend results showed sustained growth in both farming debt and agricultural production over time, indicating structural expansion in the sector alongside rising reliance on external finance. Correlation analysis revealed a strong positive and statistically significant relationship between farming debt and agricultural production (r = 0.9078), while farming debt was negatively related to GDP (r = –0.3955), suggesting that sectoral borrowing does not automatically translate into national economic growth. The 2SLS estimation results confirmed that farming debt has a positive and highly significant effect on agricultural production (p = 0.0000), implying that a 1% increase in agricultural borrowing leads to approximately a 1.40% increase in the gross value of agricultural production. In contrast, GDP showed a statistically insignificant effect (0.005863; p = 0.9760), indicating that agricultural output is influenced more by sector-specific financial conditions than by overall macroeconomic performance. The study concludes that farming debt is a key driver of agricultural production when used productively, but its broader economic contribution depends on sustainability, effective credit utilisation, and supportive policy frameworks. The findings therefore highlight the importance of strengthening agricultural finance systems, improving income stability, and promoting responsible debt management to support long-term sectoral development.