After remaining at levels below the neutral 50-point mark for six consecutive quarters, the Agbiz/IDC agribusiness confidence index (ACI) improved by six points to 50 in the first quarter of 2020. A reading at the neutral 50-point mark or above implies that agribusinesses were relatively optimistic about business conditions.
This survey of the first quarter data was conducted between the final week of February and the first week of March this year, before the spread of Covid-19 intensified across several geographies. The ACI covers agribusinesses operating in all agricultural subsectors across South Africa.
Potential decline in demand
In short, while we are pleased with the improvement in South Africa’s agribusiness sentiment in the first quarter of this year, we doubt if it will be sustained. The fundamental driver of the optimism in the sector is the improved weather conditions, with expectations that there will subsequently be higher agricultural output.
The challenge the sector faces, however, is a potential decline in demand from several traditional export markets and by extension lower agricultural commodities prices following the spread of Covid-19. This, in turn, will weigh on farmers and agribusinesses’ finances and possibly reverse the optimism we’ve seen in the first quarter of 2020.
Moreover, the outcome of the land reform policy discussions about Section 25 of the Constitution later this month is another important event to look out for, as it will have fundamental implications on agribusinesses and the agricultural sector going forward.
Overall, it is hard to celebrate the news of the ACI reaching the neutral 50-point mark, as risks which threaten to reverse much of the positive gains have increased since the time of the survey. – Wandile Sihlobo, Agbiz