SA economy narrowly avoids slipping into recession

The agriculture sector has recorded two consecutive quarters of negative growth, following three years of positive growth primarily driven by commodity price tailwinds, according to Absa AgriBusiness.

The South African economy experienced a marginal quarteron-quarter expansion of 0,1% in the fourth quarter of 2023 (2023 Q4) following an unexpected contraction of 0,2% in the third quarter (2023 Q3). This growth helped the economy avoid slipping into a technical recession, although it is lower than analysts’ expectations. Despite facing significant challenges, such as severe power outages, weaker terms of trade, local infrastructure constraints, muted global demand, lower commodity prices, and persistent domestic structural constraints, the economy demonstrated relative resilience, achieving a growth rate of 0,6% for 2023.

Economic growth reduced across four out of 10 sectors in 2023 Q4, with the agriculture, forestry and

fisheries sectors experiencing the most significant decline at 9,7% quarteron-quarter (seasonally adjusted and annualised), and contributing -0,2 percentage points to GDP growth.

LOWER GLOBAL GRAIN PRICES IN 2023 CAUSED A DECREASE IN THE VALUE OF MAIZE EXPORTS IN RAND TERMS

The agriculture industry has recorded two consecutive quarters of negative growth, having recorded a 9,6% quarteron-quarter seasonally adjusted decline in 2023 Q3. Year-on-year, growth for the agriculture sector decreased by 29,1% in quarter four, and the overall 2023 agriculture performance decreased by 12,2%. This decline in growth follows three years of positive growth primarily driven by commodity price tailwinds, which have now subsided.

The agriculture sector faced several headwinds on the back of lower commodity prices, subdued consumer spending, biosecurity concerns, and infrastructure bottlenecks. Lower commodity prices especially impacted field crops, with the gross income derived from them decreasing by 12,7% year-on-year, as shown by production figures from the Department of Agriculture, Land Reform and Rural Development.

Conversely, animal products and horticulture noted increases of 20,4% and 5,2% respectively compared with a year ago. It is important to note that these figures do not incorporate incurred costs,

such as the significant expenses borne by the poultry industry due to the outbreak of avian influenza.

Substantial declines were noted for the gross farm income for field crops, notably maize, which serves as the largest contributor to the overall field crops income, declining by 15% year-on-year in 2023. This decline can be attributed to lower average maize prices in 2023, despite the higher quantity produced during the same period.

While the maize harvest for 2022/23 was 960 000t higher, the average maize price for 2023 decreased by 17% compared with 2022. This led to lower income, which weighed heavily on agricultural performance. The timing of crop deliveries in 2023 also impacted the overall performance of field crops. The pace of maize and soya bean deliveries during the third quarter of 2023 fell behind that of the same period in 2022. This was attributed to delayed planting in the 2022 season, resulting in higher delivery volumes spilling over into the third quarter of 2022. The increase in deliveries during the second quarter of 2023 coincided with notably lower year-on-year prices for maize and soya beans. Lower global grain prices in 2023 caused a decrease in the value of maize exports in rand terms. This occurred despite higher export volumes, as global commodity prices peaked in 2022 and have since followed decreasing price trends.

LOOKING FORWARD

Despite significant global grain and oilseed price declines, the local production conditions for the summer grains and oilseed production regions have caused local maize and oilseed prices to increase. Persistent dry and hot weather during vital maize and soya bean growing phases have weighed on production sentiments, thus driving prices up.

The Crop Estimates Committee, in their first production forecast for the 2023/24 season, forecasted 12,6% and 22,8% declines in maize and soya bean production for 2023/24 respectively. Along with the persistent heat and sparse rainfall, this led to exponential monthly price increases for maize between February and March. SAFEX maize prices trading around R4 215/t for yellow maize and R5 100/t for white maize at the time of writing showed increases of 17% and 37% for yellow maize and white maize respectively.

Analysts anticipate that subsequent production forecasts will present a gloomier picture compared with the initially forecasted declines because of the prevailing pessimistic production sentiments. Lower production forecasts will lead to higher SAFEX maize and oilseed prices. Local maize prices may potentially converge towards import parity prices due to the prevailing lower global maize prices. The reduced harvest, despite higher prices, may offset the potential price gains, resulting in decreased income derived from field crops and subsequently exerting downward pressure on agricultural GDP performance. Email Nkhensani Mashimbyi at Absa AgriBusiness at Nkhensani.Mashimbyi@absa.africa.