While some subindices showed an increase from the third quarter, the Agbiz and Industrial Development Corporation’s Agribusiness Confidence Index weakened to 42 in the last quarter of the year, reflecting despondency in the sector.
Subsequent to a decline from 54 to 48 points in the third quarter of this year, the 42 points recorded in the fourth quarter is the lowest level since the fourth quarter of 2009.
The results, which are below the neutral 50-point mark, imply that agribusinesses are downbeat about business conditions in South Africa.
This decline in confidence, Agbiz said in a statement on Tuesday, can mainly be explained by a yearly reduction in agricultural output, albeit crop prices being slightly higher than last year.
In line with turnover, confidence in the net operating income subindex fell by 21 points from the third quarter to 38 in the fourth quarter of this year. This is the lowest level since the third quarter of 2013.
The general agricultural conditions subindex fell sharply by ten points to 40 in the last quarter and is mainly driven by below-average rainfall in the central and western parts of South Africa, which has subsequently delayed the planting activity in these areas, the statement said.
Additionally, the index warned that the prospects of an El Niño later in the 2019 summer season might have also affected the respondents’ perceptions.
The sentiment regarding the market share of the business improved marginally from 59 to 60 points in the fourth quarter, while confidence regarding employment in the agricultural sector improved by two points from the second quarter to 55.
However, the latter is still at its second-lowest level since the last quarter of 2016. The authors said this was “unsurprising” following a 0.1% quarter-on-quarter decline in agricultural employment in the third quarter of the year to 842 000.
Following a 14-point decline in the third quarter, capital investments confidence improved by seven points to 58 in the last quarter of this year.
According to the index, the improvement in this subindex was not entirely surprising, although the respondents consistently cited policy uncertainty as a source of despondency in past quarters.
Agricultural machinery sales have been robust throughout the year. To demonstrate this, South Africa’s tractor sales for the first ten months of this year reached 5 818 units, which is 9% higher than the corresponding period last year.
This was partially driven by expectations of an increase in summer crop plantings, which now is proving to be a challenge due to dryness and high temperatures in the central and western parts of the country.
Having said that, the index authors said some respondents maintained that the lack of clarity regarding the land reform policy proposal remains a concern that could negatively affect investments in the long term.
Confidence regarding the export volumes subindex recovered slightly by three points to 38 in the last quarter of the year and was largely underpinned by optimism in the horticultural sector.
The perception regarding economic conditions was up by four points to 18. Although this is still well below the long-term average, the index highlighted that there is still clear evidence of “continued economic underperformance in key datasets, such as the poor gross domestic product data for the first two quarters of this year”.
The recent high-frequency data promise some improvements in the upcoming quarters, the index authors said.
Further, the debtor provision for bad debt and financing costs subindices are interpreted differently from the above-mentioned indices.
In the last quarter of this year, the debtor provision for bad debt and financing costs subindices declined by two and 11 points to 43 and 30 points, respectively. However, according to the index, this was not uniform across all businesses.
Meanwhile, the drier weather conditions which were cited by some respondents as a key challenge could soon change as the South African Weather Service indicated on November 30 that there is a good chance for above-normal rainfall in the summer crop areas between December and February 2019.
“Having said that, we doubt that there will be a meaningful improvement in confidence in the near term if there is still no clarity regarding the land reform policy in South Africa.
“Any reckless move in policy, which might undermine property rights, could dent investment and long-run growth prospects in the sector,” Agbiz agribusiness research head Wandile Sihlobo said.