Despite South Africa’s agriculture machinery industry showing robust sales in March 2022, the outlook remains uncertain.
According to Agbiz, high-frequency data confirmed that agricultural machinery sales remained robust in the first three months of the year. Tractor sales were up by 5% y/y in March 2022, with 641 units sold. At the same time, combine harvester sales were up 48% y/y, with 43 units sold.
This, agricultural economist Wandile Sihlobo pointed out, builds on the solid momentum of the past two years.
“When farmers have a good year, allied industries benefit from farmers’ spending the financial gains or the produce of the farming businesses.
“Agricultural machinery is one such industry that benefited from farmers’ spending in 2020 and 2021. The farmers, specifically grain and oilseed producers, expanded their area planted in the past two years,” Sihlobo said.
Furthermore, the uptick in sales is also owed to favourable weather conditions resulting in a large harvest for two consecutive seasons.
This was also when commodity prices remained elevated. This was supported by global events such as low rainfall in South America and Indonesia and rising demand for grains and oilseeds in China.
“Had it not been for higher global agricultural prices, the local grain and oilseed prices would have softened due to large harvests,” Sihlobo explained.
“The financial gains of these years went to improvement in agricultural equipment and servicing farm debt, among other activities on the farms.”
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Looking ahead
However, Agbiz is maintaining a cautious view of the South African agricultural machinery sales outlook in 2022.
Looking ahead, they believe that 2022 will likely change the trend and show moderate agricultural machinery sales compared to the past year, “as the new machinery replacement rate will probably be weak,” Sihlobo explained.
Moreover, the crop harvest, especially grains and oilseeds, which were the primary drivers of sales in the past few years, will mainly be lower than in the past two seasons.
South Africa’s summer grains second production estimates already show a 7% y/y decline with an expected harvest of 17,8 million tonnes in the 2021/22 season, Sihlobo added.
“Additionally, the Russia-Ukraine war has led to a notable rise in other farming input costs, such as fertilisers, fuel and agrochemicals, which will strain the farmers’ finances,” he said.
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