Business confidence within South Africa’s farming sector is down yet again and now sits only slightly above 50. The Agbiz/IDC Agribusiness Confidence Index fell by a full seven points to 53 in the third quarter, following a two-point decline in the second quarter of the year.
What’s to blame for the loss of optimism?
Agriculturalists who participated in the survey cited higher input costs, friction in some export markets, persistent animal disease challenges, rising interest rates, intensified geopolitical risks which have disrupted supply chains, and ongoing weaknesses in municipal service delivery and network industries as their biggest worries.
In a press statement released on Monday (19 September 2022), Agbiz chief economist Wandile Sihlobo says, however, that any level above the neutral 50-point mark implies that agribusinesses remain cautiously optimistic about operating conditions in South Africa.
“The results still reflect broadly favourable agricultural conditions, albeit not as strong as the previous seven quarters,” he says.
Most measurements show decline
Of the index’s ten subindices, seven declined in the third quarter. This is excluding the subindices on debtor provision for bad debt and financing costs, which are interpreted differently from other subindices.
Turnover: The turnover subindex fell by 14 points to 79 but remains well above the long-term average. Sihlobo believes this shows that many farmers and agribusinesses benefit from strong crop prices. Along with the turnover.
Net operating income: This subindex fell by 15 points to 63.
Employment: This subindex declined by four points to 61, likely because harvest seasons cause the third quarter of every year to be quieter.
Capital investment: After a mild uptick in the second quarter, the capital investment subindex retracted by two points this quarter to 71.
“The current levels are above the long-term trends and reflective of the vibrant environment where the tractor and combine harvester sales have remained robust since the start of the year,” says Sihlobo. “Farmers are increasingly investing in movable assets following two agricultural seasons of large harvest and higher crop prices, specifically for grains and oilseeds.”
Volume of exports: The subindex measuring confidence in export volumes declined by just one point to 70. Agbiz says that, given the market access challenges the South African citrus industry experienced in the EU, the temporary ban of wool exports to China, which had now been resolved, the temporary stoppage of livestock product exports to some markets because of the outbreak of foot-and-mouth disease and the expected decline in summer crop and wine grape harvests, a level of 70 still indicates robust export conditions.
General economic conditions: This subindex fell by 19 points to 24, which Sihlobo believes mirror uncertainties around geopolitical tension, inflation, interest rates, the global economy, and domestic issues such as load shedding and network inefficiencies.
General agricultural conditions: This subindex fell by 11 points to 42, which is the lowest level since the last quarter of 2019. The agribusiness operating in grains, finance and agrochemicals were amongst the respondents that expressed a downbeat view of agricultural conditions.
On a positive note
Market share of agribusinesses: This category lifted by two points to 74.
Debtor provision for bad debt and financing costs: Being interpreted differently from the other indices, a decline is viewed as good, and the subindex for debtor provision for bad debt fell by three points to 39. However, the financing costs subindex increased by seven points to 11 in the third quarter. “This is still low but the increase is consistent with the current environment of rising interest rates,” Sihlobo says.
He believes that the third-quarter results speak of a sector on a sound footing but confronted with challenges.
“This moderation in sentiment suggests that 2022 could show contraction in South Africa’s agriculture gross value added. Still, this does not mean the sector is in terrible shape. The base in 2021 was high and we see slightly lower harvests in some field crops this year,” he says.
“Looking ahead, the prospects of a weak La Niña provide a good foundation for an excellent rainy season notwithstanding the lingering challenges of higher prices of critical farm inputs such as fertiliser, agrochemicals, and fuel, which will put pressure on farmers’ and agribusinesses’ finances when the summer crop season starts in October.
“For the long-term growth of this sector, the need to improve the efficiency of ports, electricity supply and water, quality of roads, curbing crime that devastates the rail network, and improving biosecurity should be prioritised by both government and the private sector.”
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