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Agribusiness sentiment is dented as input costs soar and supply chain issues bite

The Agbiz/IDC Agribusiness Confidence Index moderated further by 2 points to 60 in the second quarter following a 12-point decline in the first quarter this year.(AP Photo/L.M. Otero)

The Agbiz/IDC Agribusiness Confidence Index moderated further by 2 points to 60 in the second quarter following a 12-point decline in the first quarter this year.(AP Photo/L.M. Otero)

Published Jun 14, 2022

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Agribusiness sentiment has been dented by unrelenting input cost pressures with fuel and agrochemicals still elevated, aggressive interest rate hikes and ongoing global and domestic logistics challenges in what is supposed to have been a relatively good season, FNB senior agricultural economist Paul Makube has said yesterday.

Adding to woes was the Foot-and-Mouth Disease outbreak, which saw bans on South African export products of cloven-hoofed animals. China’s ban, was particularly significant given its share of more than 22 percent and 70 percent, respectively, for beef and wool products and had yet to be resolved.

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The Agbiz/IDC Agribusiness Confidence Index (ACI), which was released yesterday, moderated further by 2 points to 60 in the second quarter following a 12-point decline in the first quarter this year.

Makube said nonetheless, the Agbiz/IDC Agribusiness Confidence Index (ACI) was still 10 percentage points above the neutral 50-point mark at 60 points, which reflected optimism about the resilience of the sector.

He said more importantly in their view, was the uptick in the sector turnover, employment and the capital investments indices, which increased and remained at high levels.

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“This combined with a decline in the debtor provision for bad debt and financing costs indicating that the agribusinesses are not financially constrained bodes well for the sustainability of the sector and the positive outlook for the country’s food security,” Makube said.

FNB Agribusiness said the survey results were in line with the agriculture gross domestic outcomes for the first quarter which surprised on the downside with muted growth of 0.8 percent quarter on quarter (q/q) from a revised 16.4 percent q/q in the fourth quarter of 2021. There had been no considerable change in some of the downside factors to the first quarter agriculture performance.

Agricultural Business Chamber of South Africa (Agbiz) chief economist Wandile Sihlobo said a level above the neutral 50-point mark implied that agribusinesses remained broadly optimistic about operating conditions in South Africa.

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“Therefore, Q2, 2022 (quarter two) results still reflect favourable conditions, albeit not as strong as the recent quarters. This survey was conducted in the first ten days of June 2022 and covered agribusinesses operating in all agricultural sub-sectors across South Africa.”

Sihlobo concurred that the fall in sentiment was on the back of a range of factors including rising input costs, biosecurity concerns, hikes in interest rates, intensified geopolitical risks, as well as ongoing weakness in municipal service delivery and network industries.

Dr Marlene Louw, a senior agricultural economist at Absa Agribusiness, said the decrease in confidence highlighted that some issues were starting to weigh on the outlook for the industry, including input costs and logistical pressures.

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“There are, however, also various factors that continue to sustain positive sentiment in the industry-these include firm prices for grains and oilseeds and another quarter where agriculture grew 3.6 percent year-on-year (quarter one 2022).

“Our view is that good grain and oilseed prices will continue to sustain the index above 50 points over the coming months but inflationary pressures, logistical issues and rising interest rates could drive it down further, from 60 points, over the coming two quarters,” Louw said.

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