Agri confidence improves on good crops, favourable outlook

The Agribusiness Confidence Index rose to its highest level in six years and there is strong optimism about the 2020-2021 production season. Photo: Pexels.

The Agribusiness Confidence Index rose to its highest level in six years and there is strong optimism about the 2020-2021 production season. Photo: Pexels

Agribusiness decision-makers are optimistic about business conditions in South Africa. This according to the Agribusiness Confidence Index (ACI) which rose to its highest level in six years in the fourth quarter.

At 61 points, the ACI is at its highest level since the third quarter of 2014 when it stood at 63 points. This spike follows a notable recovery from the level of 51 points in the third quarter of 2020.

Levels above the neutral 50-point mark reflect an “optimistic” outlook.

The survey, which was conducted between 11 and 20 November, covers agribusinesses operating in all agricultural subsectors across Mzansi. It reflects the perceptions of more than 25 agribusiness decision-makers on the ten most important aspects influencing a business in the agricultural sector.

These include turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost.

An uptick in the fourth quarter of the year was noted for most of the subindexes. The ACI is constructed quarterly by the Agricultural Business Chamber (Agbiz), in support of the Industrial Development Corporation (IDC).

Wandile Sihlobo, chief economist at Agbiz. Photo: Supplied

According to Agbiz chief economist, Wandile Sihlobo, the fourth quarter improvement likely reflects two important factors.

“Firstly, various high-frequency data show that most of South Africa’s agriculture and agribusiness sectors performed relatively well in a year of unusually elevated uncertainty. With minimal impact, at an aggregate level, from the covid-19 crisis and related lockdown restrictions,” Sihlobo states.

Secondly, he indicates that there is strong optimism about the 2020-2021 production season. This, on the back of expected higher rainfall across most regions of the country thanks to La Niña climate conditions.

Read: La Niña weather brings hope for drought-stricken areas

SA agri employment, turnover, net operating income looks up

According to the report, agri-leaders’ confidence in turnover and net operating income soared by 32 and 35 points from the third quarter to 82 points each in Q4, respectively. These are the highest levels since the third quarter in 2014 for both.

The optimism is mainly supported by firms operating within the field crops, horticulture, livestock and financial services subsectors. Agbiz says the high levels is owed to a large harvest in 2019-2020, and the anticipated good season in 2020- 2021.

Furthermore, sentiments regarding employment rebounded by 8 points from the third quarter, to 41. According to Agbiz this is indicative that agricultural employment is expected to recover somewhat in the coming quarters.

As exports continued to soar on the back of large supplies and the relatively weaker domestic currency, sentiments for export volumes improved by 5 points from the third quarter, to 60 in the fourth quarter.

Confidence in general agricultural conditions jumped by 15 points to 94. This is the highest level since the inception of the ACI, which Agbiz reckons points to optimism about expected La Niña-induced rains.

Not so fast, agribusinesses still pessimistic about…

Agricultural businesses, however, remain cynical about South Africa’s broader economic growth outlook.

The perception regarding economic conditions improved by 4 points to 24 in the fourth quarter of this year, which is still far off the neutral point of the 50-mark.

Meanwhile, the market share of agribusinesses subindex deteriorated to 62, down a marginal 2 points from the third quarter. This view was largely shared by agribusinesses operating in the livestock subsector.

Despite the robust agricultural machinery sales data this year, the capital investments confidence subindex fell …

The sentiment regarding the debtor provision for bad debt increased to 35, a rise of 8 points from the third quarter. Agbiz emphasises that this is an unfavourable direction. However, this subindex remains fairly low, suggesting that bad debts have not become a generalised problem at this stage.

The sentiment regarding the financing costs fell by 15 points to 68, which is an improvement.

The ACI is used by agribusiness executives, policymakers and economists to understand the perceptions of the agribusinesses sector. It also serves as a leading indicator of the value of the agricultural output while providing a basis for agribusinesses to support their business decisions.

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