Although South Africa’s economy has recovered from the previous quarter’s economic performance with a 3,1% quarter-on-quarter seasonally adjusted growth rate (q/q saar), the agricultural economy did not contribute to the improvement.

After a strong contraction (16,8% – revised numbers) during the first quarter of 2019, we were optimistic that things would turn around for South African agriculture. We hoped that base effects, coupled with improved horticulture production, would trigger a recovery for the sector. However, we were wrong.

Agricultural sector is in recession

Data shows that the sector is in recession – having contracted a further 4,2% q/q saar in the second quarter of 2019, largely owing to poor field crop harvest, as a result of droughts earlier this year (Figure 1). While this surprised us, it is important to note that these are seasonally adjusted numbers, which means that the increased horticulture activity on the ground might not be reflected in a similar size in the data.

The data is weighed down by major summer crops, which performed poorly during the 2018/19 production season – maize, soya beans and sunflower seed production are down by 12% year-on-year (y/y), 21% y/y and 24% y/y, to 11,02 million tons, 1,17 million tons and 680 940 tons, respectively.

Sector to contract in 2019

Given both the data and our observations of broader agricultural activity, we believe that South Africa’s agricultural sector will underperform in 2019. We predict that the sector will contract by approximately 2% y/y this year, because of generally poor summer grains and oilseeds harvest in the 2018/19 production season.

Sentiment across the South African farming environment is relatively negative. The Agbiz/IDC Agribusiness Confidence Index, which has historically proved to be a good indicator of the growth path of the South African agricultural economy, has been rather unstable in the most recent quarters, but remains in the contractionary territory, having eased 44 points in the second quarter of 2019.

Favourable weather conditions may turn things around

This is below the neutral 50-point mark and reflects the negative perceptions held by agribusinesses about South Africa’s business climate. Given that the sector’s poor performance is largely due to unfavourable weather conditions, prospects of higher-than-average rainfall in the 2019/20 summer season provides hope that the blip will be short-lived and that gains are just around the corner (2020). – Wandile Sihlobo, Agbiz