Johannesburg - The road ahead for the agriculture sector this year should be smooth, but agribusinesses should expect a few bumps along the way coming from possible labour unrest and uncertainty surrounding the issue of land reform.
This is according to the PwC Agribusiness Insight Survey released yesterday, which also suggests that chief executives in the agribusiness sector are feeling positive about the possibility of expanding into the rest of Africa.
The survey was carried out among a group of agribusinesses with operations that are mainly focused on delivering agricultural and related services to primary producers. The participants in the survey were largely from the grain industry of South Africa.
Like last year, government regulations, energy costs and inadequacy of basic infrastructure are perceived to be serious challenges for business growth by chief executives.
Labour unrest and land reform have been added to the list as factors that concern business leaders in this sector.
Meanwhile, the survey also gives an indication that 70 percent of the business leaders in this sector are keen to enter markets on the continent outside of South Africa.
The survey says: “Africa is increasingly becoming a preferred investment destination and is said to represent the last frontier in global food and agricultural markets with its large percentage of uncultivated fertile land and sufficient water resources.”
Frans Weilbach, the national agribusiness industry leader at PwC, said agriculture as an industry was becoming a more and more significant contributor to the economy and acted as the backbone of socio-economic development.
He said the main drivers for growth expectations came from new joint ventures and strategic alliances.
Another positive indicator was an increase in asset turnover rate for the first time in three years, which might indicate that the effects of a sluggish global and local economy were improving.
Weilbach added that signs of recovery were highlighted especially in the grain and livestock industry, according to Business Monitor International report for the first quarter of this year. The sugar industry also presented some growth opportunities due to better technology and new investment opportunities.
However, the strikes and political unrest that occurred in 2012 had had an impact on investor confidence and production levels.
According to the World Bank, the wider agro-food industry in sub-Saharan Africa is projected to become a $1 trillion (R11 trillion) business by 2030 and is destined to play a pivotal role in economic development in years to come.
Roelof Botha, an economic adviser to PwC, said although prospects for agriculture this year were considerably more uncertain than for the macro-economy, the sector continued to boast the highest gross operating surplus in the economy.
“Volatile weather patterns, a drought in the large parts of the North West, higher input costs due to currency depreciation and uncertainty surrounding land reform add to the already high-risk profile of farming in the country,” Botha said.
On the financial side, most of the larger agribusinesses did not report a substantial change in profitability ratios between 2012 and last year.
The sector relied heavily on grain sales, followed by trade division, according to PwC. The 16 percent rise in grain sales is mainly due to good harvests in large parts of the country and higher prices. - Business Report