THE Agbiz/IDC Agribusiness Confidence Index rebounded to reach 74 points in the final quarter of this year, the second-highest level since the inception of the ACI in 2001.
A level above the neutral 50-point mark implies agribusinesses are optimistic about operating conditions in the country and boast a favourable outlook about the 2021/22 production season.
The second quarter of this year held the record level at 75 points, while the index retreated to 67 points in the third quarter.
Agbiz chief economist Wandile Sihlobo said yesterday they were concerned that the higher input costs would discourage planting in some areas of the country, however, all the high-frequency data pointed to the opposite.
“Farmers are boosting plantings and taking advantage of the favourable weather conditions and attractive commodity prices. All else being equal, we are heading for another year of solid growth in South Africa's agricultural sector,” Sihlobo said.
The higher commodity prices, combined with the excellent weather outlook on the back of a La Niña event, were conducive to agricultural activities and could help farmers offset the higher input costs they incurred at the start of the season.
This survey was conducted over the last two weeks of November and covered agribusinesses operating in all agricultural subsectors across South Africa.
It comprises ten subindices all of which improved from the third quarter of this year. The turnover and the net operating income subindices increased by 10 and 1 points from the third quarter to 92 and 85, respectively, reflecting improved farm incomes on the back of a large harvest in the 2020/21 season across the field crops and horticulture products, along with generally higher commodity prices, especially for grains and oilseeds
The one major challenge that most respondents highlighted was the higher input costs, which was eroding profit margins of most farming business. However, the favourable production outlook for the 2021/22 season and persistently higher commodity prices suggested that most farming businesses could remain profitable.
After falling by eight points in the third quarter, the market share of the agribusinesses subindex improved by six points to 77 in the last quarter. The financial institutions and the agribusinesses in horticulture and winter crops were among the respondents that signalled an improvement in the market share subindex. At the same time, the rest of the respondents maintained a broadly unchanged view from the third quarter.
The employment subindex improved by two points from the third quarter to 62 on the general improvement in agricultural activity on the back of favourable rainfall and farmers having signalled a five percent year-on-year (y/y) improvement in summer crop plantings this year as well as a general progressive improvement in horticulture production.
The authors of the index said it was surprising the capital investments subindex jumped by 22 points to 79, which was the highest level since the second quarter of 2014. Some respondents attributed this improvement in this segment to consolidation in the sector and spending on movable assets, which was reflected in recent robust tractors and combine harvesters sales. For example, South Africa's total tractor sales for the first 10 months of this year were at 6 238 units, up by 25 percent y/y. The combine harvesters’ sales increased by 37 percent y/y over the same period with 242 units sold.
The subindex measuring the volume of exports sentiment rebounded by six points to levels seen in the second quarter of this year, which was 79. The sizeable harvest from the field crops and horticulture, combined with co-operation among the logistics stakeholders and Transnet in facilitating exports, helped sustain exports at fairly higher levels. This also reflected some normalisation in export activity after the serious challenges Transnet experienced in the third quarter.
FNB Agri-Business senior agricultural economist Paul Makube said that unlike the RMB/BER Business Confidence Index that remained stable at 43 index points in the final quarter, the Agbiz-IDC Agribusiness Confidence cruised to a second record high was indicative of robust domestic trading conditions and another year of favourable seasonal production outlook (2021/22).
“This survey outcome suggests that while recent input costs escalations are likely to erode producer margins, the relatively higher agriculture commodity prices and another excellent seasonal outlook following the 2020/21 bumper harvests far outweighed these concerns,” Makube said.
Makube said the upswing in capital investment was most welcome and indicated long-term industry sustainability through asset replenishment and replacement.
“It is important to recall that farmer finances took a serious knock due to 2015/16 drought and it generally takes time to recover. Nonetheless, the past two years have been relatively fantastic, and we look forward to another year of solid performance from the agriculture sector.”
BUSINESS REPORT