The effects of changing the climate, which is, of course, a global challenge, have been felt in Sub-Saharan Africa and parts of Asia in the recent past. This has been through erratic rainfalls and more frequent occurrences of droughts and floods.
Impact of climate change on value chain industries
For countries whose economies are largely dependent on agricultural fortunes, the impact of climate change has largely been felt through smaller harvests, poorer grazing conditions for livestock and ultimately food price inflation.
However, less discussed but equally important is the impact of climate change on value chain industries such as agricultural inputs and equipment providers, agricultural financiers, and food processing companies amongst others. We are witnessing this in South Africa, albeit thus far at a fairly marginal scale. To single out one industry – the agricultural equipment – its performance has been subdued since the start of the year.
There are a number of factors that have led to this trend, but chief amongst them is the poor performance of agricultural production, which is caused by unfavourable weather conditions.
A reduction in summer grains
When the 2018/19 summer grains and oilseeds season started in October 2018, only parts of Mpumalanga, KwaZulu-Natal, Gauteng, Eastern Cape and Limpopo received light showers which enabled plantings. Other provinces, specifically the Free State and North West only received good rainfall in late December 2018. This meant that plantings had to be delayed by roughly a month from the normal schedule. And this subsequently led to a 4% year-on-year reduction in summer grains and oilseeds area planted to 3,7 million hectares in the 2018/19 production season.
Furthermore, the crop yields in areas that planted also took a knock. The 2018/19 sunflower seed, soybean and maize harvested are expected to fall by 29%, 21% and 13% from the previous season to 611 140 tons, 1,2 million tons, and 10,9 million tons, respectively. All of this weighs on farmers’ finances, and thus the agricultural equipment sales.
Agricultural equipment sales
Admittedly, we cannot attribute the poor performance on the agricultural equipment sales solely on unfavourable weather conditions. This is a year that follows 2018 where sales were relatively robust, which implies that the rate of replacement will likely be down in 2019. To illustrate this point; South Africa’s total tractor sales for 2018 amounted to 6 680 units, up by 4% from the previous year. In terms of combine harvester sales, the year 2018 presented a good performance, with 200 units sold, up by 2% from 2017.
Policy discussions on agricultural investment
Another important point that we continue to monitor, through the Agbiz/IDC Agribusiness Confidence Index, is the influence on policy discussions on agricultural investment. Sentiment in the sector has generally been subdued since the second quarter of 2018. But what we found rather comforting is that fixed investments in the sector did not decline notably in 2018.
However, the subdued confidence levels in the second quarter of 2019 suggest some urgency in moving the policy leavers to ensure that, at least matters that are in the South African policymakers’ reach are well addressed for the interest of sustainable growth of the agricultural and agribusiness sector.
In closing, the changing climate will continue to be the key driver of the performance of the agricultural sector and inter-linked industries in the near term and for many years to come. We expect a generally subdued performance in terms of tractor purchases over the coming months, with a potential turning point being around October 2019 when the 2019/20 summer grains and oilseed production season starts. But this is if weather conditions improve. – Wandile Sihlobo, Agbiz
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.
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