Agribusinesses are cautiously adapting to South Africa’s challenging operating conditions, according to the Agbiz/IDC Agribusiness Confidence Index (ACI).
After remaining below the 50-point mark for three consecutive quarters, the ACI rebounded by six points from this year’s second quarter (Q2) levels to reach 50 points in the third quarter.
According to the ACI, this improvement implied that agribusinesses were cautiously adapting to the challenging business conditions in the country emanating from the numerous long-standing challenges such as deteriorating infrastructure, failing municipalities, intensified geopolitical tension, and persistent episodes of load shedding.
The readings above the neutral 50-point mark imply that agribusinesses are optimistic about business conditions in South Africa. The survey was conducted between the last week of August and the first week of September.
The ACI comprises 10 sub-indices, and seven improved in the third quarter.
The turnover and the net operating income sub-indices were up by nine points and four points from Q2 – to 74 points and 59 points in quarter three (Q3), respectively. Firms in the summer and winter grains, financial services and livestock sub-sectors mainly underpinned this optimism. The sentiment mostly mirrored the benefits of an ample agricultural harvest in the 2022/23 season.
The market share of the agribusiness sub-index was up two points to 59. The respondents that mainly underscored this improvement were primarily in the summer and winter grains sub-sectors, while other sub-sectors maintained an unchanged view from the last quarter.
The employment sub-index lifted by 11 points to 59 in Q3. This optimism was said to be unsurprising as the sector recently registered an improvement in jobs. About 894 000 people were employed in primary agriculture in the second quarter, up 1% quarter-on-quarter and 2% year-on-year.
Surprisingly, the capital investments sub-index increased by 19 points from Q2 to 73. The index authors said they suspected the sharp improvement in sentiment could be linked mainly to investment in renewables to cope with the intensified load shedding.
However, the sub-index measuring the volume of export sentiment declined notably by 17 points to 43 points. This deterioration in sentiment signalled the expected decline in export volumes this year from the robust levels of last year, although the harvest was reasonably decent in all major crops and fruits. Ongoing worries about underperforming logistics could also be a cause for this pessimism, the ACI said.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo, who is involved in compiling the index, said the Q3 results indicated a slightly upbeat mood after the past three quarters of deterioration in sentiment.
“Still, the long-standing challenges of weakening municipalities, deteriorating roads, rising crime, inefficient logistics, and persistent load shedding remain the major challenges that could undermine the sector’s long-term growth. These are aspects that both the government and private sector should collaboratively work to resolve to attract investments,” Sihlobo said.
John Hudson, Nedbank head of agriculture, said the turnaround and improvement in confidence was welcomed, but in reality the country was still experiencing elevated risk.
“The 50-point mark, which is neither positive or negative, is an indication of the uncertain environment within which the sector finds itself. On closer scrutiny, the sub-indices which talk to provision for bad debt and financing costs have deteriorated, which is contrary to some of the other ratings which reflected an improvement.”
Sakhumzi May, the acting executive manager of agriculture and economics advisory at Land Bank, said the rebound in the ACI was a positive indicator for the South African agricultural sector.
The financier said some positive pointers from the latest ACI included ample agricultural harvests in the 2022/23 season that farmers were expected to benefit from. This could translate into increased profitability for local producers.
He said the index reflected an improvement in jobs in the agricultural sector, which was essential for local communities and the economy.
“Producers can view this as an opportunity to invest in their workforce and expand their operations. The notable increase of 19 points in the capital investments sub-index, possibly linked to investments in renewables to cope with load shedding, is a favourable sign for local producers.
“Investing in alternative energy sources can improve operational reliability and efficiency, reducing production disruptions. Land Bank is proud to have launched a blended financial tool together with the government, called the Agro Energy Fund, which is designed to address the adverse effects of recurrent power outages on the efficiency of agricultural producers,” May said.