Confidence at record high in SA agribusiness
CONFIDENCE in the agribusiness sector reached a record high in the second quarter of this year.
The Agbiz/IDC Agribusiness Confidence Index (ACI), which reflected the perceptions of at least 25 decision-makers on the 10 most important aspects in the sector, reached 75 points from 64 points in the previous quarter.
AgriBiz chief economist Wandile Sihlobo said the results suggested that South Africa’s agricultural sector was set for another year of robust performance.
Sihlobo said other organisations were slightly more upbeat, with the Bureau for Food and Agricultural Policy, for instance, forecasting growth of 7.6 percent year-on-year, compared with growth of 13.1 percent last year.
“The higher commodity prices have also improved farmers’ finances, contributing to better sentiment,” Sihlobo said. “We are in a good year from a production perspective. Our main concern at the moment is around the biosecurity challenges in the livestock and poultry sectors. These are areas that should be addressed to sustain the positive momentum in agriculture.”
Paul Makube, the senior agricultural economist at First National Bank, said the ability to detect, prevent and respond to animal health and livestock emergencies was critical to ensure food security and the sustainability of the agricultural sector of any country.
Makube said South Africa had a well-established disease and pest management regime.
“We have over time learned to respond timeously to disease and pest outbreaks,” said Makube.
The ACI comprised 10 sub-indices, and most of these were behind the significant increase in the composite index in the second quarter.
The turnover and the net operating income sub-indices increased by five points and one point from the first quarter to both settle at 91 points.
As in the first quarter, with the exception of the agricultural insurance providers, all other agribusinesses that participated in the survey expressed higher levels of optimism about these sub-indices, as the expected large harvest in the 2020/21 production season boosted financial conditions. In addition, the rising demand for agricultural products and key farming equipment, such as tractors and associated parts, also supported these sub-indices.
The market share of the agribusinesses sub-index improved by seven points from the first quarter to 78 points, which was the highest level since the last quarter of 2016. This optimism was underpinned by agribusinesses operating in field crops and financial services, while others expressed an unchanged view.
The employment sub-index increased by 23 points to 66 points in the second quarter, which was in contrast to the recent jobs statistics, which showed a decline in agricultural employment in the first quarter. The improvement in sentiment regarding employment conditions in agriculture raised hopes of some reversal of recent job losses in the sector.
Another positive was the capital investments sub-index, which also increased by 23 points from the first quarter to 69 points, its highest level since 2016.
Agricultural machinery sales, which have shown strong growth since mid-2020, supported the rise in this sub-index.
Following a decline in the first quarter of this year, the sub-index measuring the volume of exports sentiment improved by 22 points to 78 points in the second quarter. The expected sizeable domestic production could lead to higher volumes of exports this year, following robust agricultural exports in the first quarter.
The economic conditions sub-index jumped by 39 points to 78 points in the second quarter, reaching its highest level since the last quarter of 2011.
The debtor provision for bad debt and financing costs sub-indices were interpreted differently from the indices mentioned above. A decline reflected a favourable development, while an uptick was not an undesirable outcome, because it showed that agribusinesses were financially constrained.
In the second quarter, the sentiment regarding financing costs fell by five points to 57 points, indicating a favourable direction that also reflected the current low interest rate environment.
On the other hand, sentiment regarding debtor provision for bad debt increased by seven points to 50 points, which was unfavourable. However, this sub-index remained relatively low, suggesting that bad debts had not yet become a major challenge at this stage in the sector.
The general agricultural conditions sub-index deteriorated marginally by two points from the first quarter to 83 points in the second quarter. This was also still well above the 50-point neutral mark and reflected favourable agricultural conditions.