The Agbiz/IDC Agribusiness Confidence Index (ACI) fell from the 50-point mark in the first quarter of the year to 39 in the second quarter. This is the lowest level since the third quarter of 2009, at the height of the global financial crisis. A level below the neutral 50-point mark implies that agribusinesses are downbeat about prevailing business conditions in South Africa.

The ongoing COVID-19 crisis is primarily a health shock, but its impact on the economy has been severe and these sentiment results are a reflection of that. This second-quarter survey was conducted between the final week of May and the first week of June this year. The ACI covers agribusinesses operating in all agricultural subsectors across South Africa.

The ACI comprises ten sub-indices and all showed a significant decline in the second quarter of the year, with most reaching their lowest levels since 2009. This comes despite the fact that South Africa’s agricultural sector, and the food sector in particular, was operational during the strict level 5 lockdown period, except the wine, floriculture, wool and cotton subsectors, among others, which only resumed operating fully from level 4 and 3.

Confidence regarding the turnover fell by 35 points from the first quarter of the year to 29 in the second quarter. This is the lowest level since the third quarter of 2009. This pessimistic view was held across agribusinesses operating in various subsectors, except the financial service firms. In the case of summer grains-related businesses, lower income from storage and handling was, in part, a key factor underpinning the decline in confidence.

Tradeable grain and grain quality

The challenges related to grain quality lowered the amount of tradeable grain in the market, especially for old-season white maize. Moreover, the late grain deliveries for the new season, which started later than normal due to delayed summer rains, also weighed on the sentiment.

In agricultural machinery businesses, the downbeat sentiment in the turnover sub-index is somewhat in line with continuous poor sales in the first couple of months of this year. In the livestock sector, the ban on auctions and closure of restaurants, which accounts for a notable share of meat consumption, when the lockdown started continued to weigh on the incomes of firms and farms.

Broadly, the decline in retails sales of various agribusinesses due to lockdown regulations also weighed on sentiment.

Net operating income sub-index

In line with the turnover, confidence in the net operating income sub-index fell by 40 points from the first quarter of the year to 21 in the second quarter. This too is the lowest it has been since the third quarter of 2009. The factors underpinning this decline are similar to those of the turnover sub-index.

The market share of the agribusiness sub-index was 63 points in the second quarter of 2020, down from 67 in the first quarter. Most agribusinesses maintained a generally unchanged view of this specific sub-index compared to the previous quarter, with those in agricultural insurance and financial services showing an uptick.

Concluding remarks

While South Africa’s agricultural sector could register an improvement in output in 2020 compared to the previous year, as well as an increase in export earnings, the cloud of uncertainty around the pandemic could continue to keep sentiments depressed.

With several economies set for sharp contractions due to the pandemic, South Africa’s agricultural sector will likely face a potential decline in demand locally as well as from several traditional export markets that, by extension, will lead to lower agricultural commodity prices. This, in turn, will weigh on farmers and agribusinesses’ finances.

Another important focus in the coming quarters is domestic agricultural policy, specifically land reform, which had dominated the landscape before the pandemic. Any path that government will take in this regard will have an impact on investment levels in the sector, and thereafter long-run growth prospects. – Press release, Wandile Sihlobo

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