After falling to the lowest level since 2009 in the last quarter of 2018, the Agbiz/IDC Agribusiness Confidence Index improved by 4 points, rising to 46, in the first quarter of this year. While the improvement in sentiment is a welcome development, the Index remains below the neutral 50-point mark, implying that agribusinesses are still downbeat about business conditions in South Africa. The survey was conducted between 28 February and 15 March and comprised agribusinesses operating in all agricultural subsectors across South Africa.

Confidence in horticultural and livestock sectors

The overall Index comprises ten sub-indices, most of which are still generally subdued compared to the long-term averages, since its inception in 2001. Be that as it may, the marginal uptick in the overall Index in the first quarter of this year was underpinned by seven out of the ten sub-indices.

After deteriorating to the lowest level since the first quarter of 2010, confidence regarding the turnover sub-index improved by 13 points to 61 in the first quarter of this year. This optimism comes from agribusiness operating in the horticultural, livestock, agrochemical and wine subsectors. In line with the turnover, confidence in the net operating income sub-index increased by 9 points from the fourth quarter of last year to 46 in the first quarter of this year. In addition to the aforementioned factors, the uptick in agricultural crop futures has, to some extent, also boosted sentiment in this sub-index.

Sentiment regarding the market share of the business improved from 60 points to 64 points in the first quarter. Observations across the respondents suggest that the optimism was also driven by the horticultural and livestock subsectors, and by agrochemical entities.

Tractor sales up

Encouragingly, the capital investments confidence improved by 4 points to 62 in the first quarter. This is partly mirrored in sales of agricultural machinery, specifically of tractors and combine harvesters, which showed solid performance in February. This was a continuation of last year’s robust sales where total tractor sales amounted to 6 680 units, up by 4% from 2017. In terms of combine harvester sales about 200 units were sold, up by 2% from 2017. Respondents continue to highlight the ongoing land reform policy discussion as a key issue they are observing closely, the outcome of which could influence investment decisions going forward.

Confidence regarding the export volumes sub-index increased significantly by 19 points to 56 index points in the first quarter. This confidence came from the horticultural and livestock subsectors.


A boost for citrus exports

From a horticultural perspective, the Citrus Growers’ Association recently noted that exports could reach a record level of 137 million boxes of citrus fruit this year. Moreover, the South African Wine Industry Information and Systems noted the possibility of a relatively larger harvest of wine grapes this year, which should boost exports. In terms of livestock, while the outbreak of foot-and-mouth disease earlier this year was the cause of some countries placing a temporary ban on South African beef exports, the Department of Agriculture, Forestry and Fisheries is engaged in discussions to re-open markets for South African beef in the African continent, and in the Middle East.

Although the sentiment from the horticultural subsector is fairly positive, the general agricultural conditions sub-index fell by 8 points down to 32 points in the first quarter. This is due to below-average rainfall at the beginning of the year particularly in the central and western parts of South Africa. This subsequently delayed the planting activity in these respective areas and resulted in reduced summer grain and oilseed area plantings. South Africa’s 2018/2019 summer grain and oilseed plantings are estimated at 3.7 million hectares, down by 3% year-on-year.

The perception regarding economic conditions improved by 3 points to reach 21. However, this is still well below the long-term average. Moreover, the renewed power outages across the country, and disappointing high-frequency data over the past few months, suggest that South Africa’s economic fortunes could remain constrained for the better part of this year.

Confidence regarding employment in the agricultural sector deteriorated marginally by a point, from the last quarter of last year, to 54 points. Although the horticultural sector will probably see increased activity on the back of an expected large harvest, the summer crop areas will most likely experience a decline in activity, and therefore in employment.

The debtor provision for bad debt and financing costs sub-indices are interpreted differently from the above-mentioned indices. A decline is viewed as a welcome development, while an uptick is not a desirable outcome as it shows that agribusiness is financially constrained. In the first quarter of this year, the sentiment regarding the debtor provision for bad debt declined by 10 points to 32, partly due to the expected improved performance of the horticultural subsector. Meanwhile, the financing costs sub-index increased by 8 points to 38 points.

Pragmatic optimism

The overall improvement in sentiment in the first quarter of this year is a welcome development, but it is by no means a cause for celebration, as confidence levels in the agricultural sector are still in contraction territory, at levels below the neutral 50-point mark. The glimpses of optimism were mainly in horticulture, livestock and agrochemical related businesses, whereas other subsectors expressed despondency due to the expectation of a poor harvest on the back of erratic rainfall earlier this year.

Above all, the additional comments of most respondents are still centred around the subject of land reform. “While investments in movable assets such as agricultural machinery have been encouraging over the past couple of months, the outcome of the ongoing land reform processes, such as the President’s Advisory Panel, and the Parliamentary Review Committee, among others, are key to determining the path for fixed investments in South Africa’s agricultural sector, and long-term  growth prospects and employment,” says Wandile Sihlobo, chief economist at Agbiz. – Press release