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Agri confidence declines marginally in Q4, but business is still positive

21st November 2016

By: Anine Kilian

Contributing Editor Online

  

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While the Agricultural Business Chamber (Agbiz)/IDC Agribusiness Confidence Index declined by five index points in the fourth quarter of this year to 55 index points, any index above 50 still indicates expansion in South African agribusiness, said Agbiz in a statement released Monday.

The chamber further noted that an index of 55, therefore, suggests that agribusinesses are still holding a relatively optimistic view of business conditions in the country, and that, while the quarter-on-quarter survey showed a decline in the overall index, this change was only supported by three sub-indices.

Seven out of ten sub-indices of the survey showed expansion, with the exception of turnover, net operating income and the employment sub-indices, which were the key drivers of the decline.

To some extent, the decline in these particular sub-indices mirrors the aftermath of the 2015/16 El Niño-induced drought.

General improvement in most sub-indices was in line with prospects for the 2016/17 production season.

Recent data suggests that summer crop-producing regions could plant 3.75-million hectares, which is a 15% year-on-year increase.

Moreover, winter crop-producing regions are set to realise a 15% year-on-year uptick in total output to 2.14-million tons.

Meanwhile, business confidence in the turnover subindex dropped by eight points to 67 quarter-on-quarter, which suggests that some agribusinesses may be making losses, particularly the ones operating in grain-producing areas.

Lower output that was seen in the 2015/16 production season resulted in lower storage and handling income for agribusinesses.

In a similar trend, the net operating income subindex dropped by 18 index points to 47 in the fourth quarter, as agribusinesses continued to suffer the effects of the 2015/16 El Niño-induced drought.

Further, while the business subindex improved by 12 index points from the previous quarter to 80, perceptions regarding employment in the agriculture sector deteriorated in the fourth quarter of this year.

“The sub-index fell from 63 points to 53. It appears that agribusinesses’ perception regarding employment has been influenced by the views expressed on the net operation income sub-index,” the statement notes.

Despite the growing concerns about South Africa’s political and policy uncertainty, confidence regarding capital investment improved by nine index points from the third quarter to 69.

After dropping by 17 index points to 33 in the third quarter, the export volumes sub-index improved by 31 index points to 64 in the fourth quarter. This was largely driven by increased export activity in the citrus and wine industries.

Confidence regarding South Africa’s economic growth improved from 30 index points to 34. This comes after the South African Reserve Bank revised up the 2016 gross domestic product forecast from zero to 0.4%.

The general agricultural conditions sub-index improved by 11 points from the third quarter to 66. 

“This is largely supported by the expected favourable weather conditions for the 2016/17 production season. Recent reports from the Earth Institute of Columbia University and the Australian Bureau of Meteorology indicate that the possibility of La Niña occurrences in November are 75% and 50%, respectively.”

If these predictions materialise, South Africa will probably see above-normal rainfall towards the end of November 2016 and throughout the summer months.

Following a sharp decline of 43 index points in the third quarter, confidence concerning the debtor provision for bad debt improved by 28 index points to 60 in the fourth quarter.

This comes on the back of the 2015/16 drought, which has weighed on farmers’ cash flows.

Agbiz reiterated that, while the confidence index showed a decline in the fourth quarter of this year, it was still above 50 index points – which showed an expansion of business activity in the sector. Encouragingly, this is the second consecutive reading above 50 index points.

Looking ahead, a survey of expectations for prospects for January 2017 to June 2017 suggests that the confidence index could remain above 50 index points during this period.
 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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