Agribusiness confidence index falls to lowest level in nearly a decade
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 says in a statement, can mainly be explained by a yearly reduction in agricultural output, albeit crop prices being slightly higher than last year’s.
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 says.
Additionally, the index warns that the prospects of an El Niño event 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 agriculture 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 say this was “unsurprising”, following a 0.1% quarter-on-quarter decline in agricultural employment in the third quarter of the year to 842 000.
Capital InvestmentsFollowing 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. This is demonstrated by South Africa’s tractor sales for the first ten months of this year reaching 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 is now proving to be a challenge owing to dryness and high temperatures in the central and western parts of the country.
Nevertheless, the index authors say some respondents maintain 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 horticulture sector.
The perception regarding economic conditions is up by four points to 18. Although this is still well below the long-term average, the index highlights 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 say.
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