Drought and declining confidence weigh on farmers
Although the agricultural sector emerged as an anchor of SA’s economy in 2017’s second quarter, growing 33.6% quarter on quarter, things are not all rosy due to persistent dryness in the Western Cape and a decline in agribusinesses confidence.
After dropping one index point in the second quarter, the Agbiz/IDC agribusiness confidence index declined by two more points in the third, to 54 points.
A reading above 50 indicates expansion in agribusiness activity, which means conditions were still fairly favourable in the third quarter of the year, but on a declining trend. It remains unclear whether confidence could be revitalised in the short term, given the nature of the key drivers of the recent decline. These were the unfavourable weather conditions in the Western Cape and slow white maize export activity.
Just last week, the South African Weather Services indicated that the country’s southwestern parts could remain dry and warm for the foreseeable future.
This does not bode well for winter crops and horticulture in the Western Cape, which urgently needs rainfall to replenish soil moisture and dam levels. The water levels in the Western Cape dams averaged 35% at the beginning of this week, 27 points lower than the corresponding period in 2016.
This is cause for concern not only because it is weighing on agribusinesses confidence, but because the province contributes about 22% of SA’s agricultural GDP.
The slow pace of white maize exports also weighs on agribusinesses confidence, particularly in the country’s northern parts. This too is unlikely to change in the near term. As indicated in this column on August 17, SA’s traditional export markets for white maize are well supplied due to large harvests in those countries. This means the country will continue to see slow white maize export activity in the near term.
I place more emphasis on the Agbiz/IDC agribusiness confidence index performance because it typically signals how SA’s agricultural GDP could perform in the succeeding quarters. Thus, a decline in confidence suggests the performance of the agricultural sector in the coming quarters might not be as robust as was observed in 2017’s first two quarters.
The northern parts of the country could receive good rainfalls in the 2017-18 summer season.
The South African Weather Services indicates that from October to December, the northeastern parts of the country could receive above-normal rainfall. This bodes well for summer crops as it coincides with the planting period. The agricultural sector will maintain the current positive GDP growth throughout 2017 despite the aforementioned factors. It will be at a relatively slower pace than previously observed.
The effect of the Western Cape drought on a crop such as winter wheat will be clear by the end of September when the National Crop Estimate Committee releases its second production assessment.
In its first estimate, the committee slashed production by 16% year on year to 1.6-million tonnes. This means SA will have to increase wheat imports in the 2017-18 season to meet domestic demand.
For horticulture, the effect of dryness might be clear towards the end of 2017, but incoming reports from industry groups such as Hortgro paint a picture to grow concern regarding the production outlook in the province.