Agribusiness business confidence steadied in the second quarter, but still stayed below the break-even-level of 50 points amid a myriad of challenges, according to the Agbiz/IDC Agriculture Business confidence (ACI) for the second quarter released yesterday.
The index was unchanged in the second quarter of this year after a five point decline to 44 in first quarter. The ACI level in the first two quarters of this year was the lowest since the second quarter of 2020, when Covid-19 lockdown restrictions were first implemented.
Agbiz chief economist Wandile Sihlobo said yesterday that notably, the second quarter reading marked the third consecutive month below the neutral 50 point-level, implying that agribusinesses remained downbeat about business conditions.
“Intensified geopolitical tensions, unfavourable draft water regulations, persistent episodes of load shedding, rising interest rates, poor road conditions and ongoing weaknesses in municipal service delivery were the key factors survey respondents cited as their prime concerns.
“This survey was conducted in the first two weeks of June, covering businesses operating in all agricultural sub-sectors across South Africa,” Sihlobo said.
Sihlobo said the index showed concerns among the agriculture and agribusinesses role players regarding the economic conditions of the sector.
“There remains great potential for growth in this sector, but that can only be realised when there is a favourable policy environment and supportive infrastructure.
“The recent water draft regulations are an example of policy missteps that South Africa would do well to avoid. Importantly, addressing bio-security issues, improving roads, and opening more export markets are key to improving sentiment and the sector’s fortunes,” he said.
Paul Makube, senior agricultural economist at FNB, yesterday said that the sector still showed some resilience despite tough operating conditions, with some subindices such as turnover, net operating income, agribusiness market share, capital investments, and volume of exports remaining way above the 50 point-level despite recent declines at 64, 61, 57, and 55 points, respectively.
“We already expect a huge harvest from the summer and winter crops, with recent crop estimates indicating a 6% increase in overall grain and oilseed production for the season to 20.20 million tons with output for maize – SA’s biggest staple – increasing by 4.6% y/y to 16.19 million tons despite a contraction in planted area,” he said.
The outlook for export commodities had improved after two years of tough trading conditions.
He said the rand exchange rate has turned positive and would boost export revenues. Further, traction on the export market was relatively good for most export commodities, despite constrained consumer budgets in destination markets with elevated interest rates and inflation in Europe and the UK.
“Shipping costs have also fallen sharply from the 2022 highs, as reflected in the Drewry World Container Index which showed a 78% y/y decline during the first week of June, 2023 at $1 681 (R30 587/40-ft container and was 37% below the 10-year average of $2 688,” Makube said.
Looking forward to a rebound in agriculture growth in the second half of 2023, and for 2024, the lingering El Niño weather pattern might dampen the outlook if it turned out to be deeper than expectations, he said.