Agribusiness gets a confidence boost

THE AGRICULTURAL Business Chamber (Agbiz) and Industrial Development Corporation’s (IDC) agribusiness confidence index improved in the third quarter to register 60index points.

The index rose 13points in the quarter from 47points in the second quarter.

Points below 50 are a sign that there is contraction in the agricultural sector. The last time the index registered 50 and above index points was in the third quarter of 2014.

Wandile Sihlobo, an agricultural economist at Agbiz, said the latest figures were a good sign for the country as far as agriculture was concerned.

“An index point above 50 indicates expansion in the South African agribusiness activity. Therefore, a 60 index point suggests that agribusinesses are holding an optimistic view regarding business conditions in the country,” said Sihlobo.

The improvement in the index, if sustained for a long period could lead to employment. “This would make it possible again for the agricultural sector to create employment again starting with seasonal labour. At this stage it is not possible to say how many jobs can be created,” said Sihlobo.

Sihlobo said it was important to highlight that the recovery in agriculture confidence was not supported by broad improvement in all sub-indices. Seven out of 10 sub-indices of the survey showed a contraction, with the exception of economic growth prospects, agricultural conditions and employment sub-indices, which were key drivers of this rebound.

Financing costs, debtor provision for bad debt and capital investment are some of the sub-indices that had shown contraction in the quarter.

The positive data reported by Statstics SA at the beginning of the month, which showed that South Africa’s economy grew in this year’s second quarter by 3.3percent quarter on quarter, helped the index to recover.

“The gross domestic product figures showed that the economy grew by a seasonally adjusted, annualised rate of 3.3percent quarter on quarter, following a contraction of 1.2percent quarter on quarter in the first quarter of the year and the La Niña occurrence were the positive signs that… boosted the agricultural sector,” said Sihlobo.

However, Sihlobo said the country would need to maintain this improvement for a longer period of time in order for the sector to improve in other aspects.

The Agbiz/IDC index has 10 sub-indices and confidence regarding the turnover sub-index dropped by 4points to 75, which suggested some agribusinesses were making losses, particularly the ones operating in grain-producing areas.

Lower production means lower storage and handling income for agribusiness.

The employment index marginally improved by 9index points from the previous quarter to 63. The recovery is partly linked to the fact that the sector is approaching the production season, therefore activity might increase, which in turn could lead to seasonal job opportunities.

“Confidence regarding capital investment dropped by 7 index points to 60. We suspect that this decrease is linked to growing concerns about South Africa’s political and policy uncertainty,” said Sihlobo.