The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) has declined by five points in the first quarter to 44, from 49 in the fourth quarter of 2022.
In turn, the four-point decline to 49 in the last quarter of 2022, had marked the first time the ACI entered into negative territory, below the neutral 50-point mark, in nearly three years.
The current reading is the lowest since that of the second quarter in 2020, when Covid-19 lockdown restrictions were implemented.
Agbiz attributes the decline in the ACI to persistent and intense episodes of loadshedding, high input costs, rising protection in some export markets, rising interest rates, intensified geopolitical tensions that disrupt supply chains and ongoing weakness in network industries and municipal service delivery.
Of the ACI’s ten subindices, six declined in the first quarter of 2023.
The turnover subindex declined by nine points to 69, which is still above the long-term average, signalling that many farmers continue to benefit from relatively high crop prices, particularly in grains and oilseeds. The expected large summer crop harvest in the 2022/23 production season also provides support to this subindex.
The market share of agribusinesses subindex dropped by ten points to 58 in the first quarter of the year, with respondents citing notable declines in the horticulture and livestock subsectors.
The employment subindex fell by 12 points to 47, which shows a downbeat sentiment among respondents. In the fourth quarter of 2022, about 860 000 people were employed in the primary agriculture sector.
The capital investments subindex declined by seven points to 59, which Agbiz says is unsurprising given rising interest rates and frequent loadshedding.
The general economic conditions subindex dropped by 14 points to 11 in the first quarter of the year, which speaks to the current challenging business conditions brought about by the energy crisis, inefficiencies in the network industries, inflation concerns and rising interest rates.
The general agricultural conditions subindex also fell by nine points to 31 – the lowest level since the fourth quarter of 2019.
This perhaps reflects the effects of excessive rains at the start of South Africa's 2022/23 summer crop production season, which created challenges for farmers and agricultural role-players. Crop planting in various regions of the country was delayed by about a month, threatening yield prospects.
However, the warm weather at the end of January and much of February helped improve conditions on the farms. It, therefore, eased concerns about the possibility of smaller yields due to excessive soil moisture.
Moreover, the persistent loadshedding raised concerns that areas under irrigation could receive poor yields. Still, the return of rainfall, at a moderate pace, from mid-February provided a much-needed breather and improved crop conditions.
The net operating income subindex was up by two points to 61, mainly reflecting better operating conditions in the grains and oilseeds sector.
The subindex measuring the volume of exports sentiment lifted by 13 points to 63 in the first quarter of 2023, which Agbiz said was to be expected given solid export activity in 2022 and it hoped that it would continue this year.
South Africa’s agricultural exports reached $12.8-billion in 2022, which was a 4% increase on agricultural exports in 2021.
The subindices of the debtor provision for bad debt and financing costs are interpreted differently from the abovementioned indices. A decline is viewed as a favourable development, while an uptick signals growing financial strain.
In the first quarter of 2023, the debtor provision for bad debt was up by two points to 36, which is unfavourable and signals growing worries about financial conditions in the sector.
Meanwhile, the financing costs indices surprisingly fell marginally by one point to a level of three, which means there are still concerns about relatively higher interest rates.
Overall, the ACI shows growing concerns among agriculture and agribusiness role-players about the economic conditions of the sector.
“Addressing the energy crisis, network industries and biosecurity, as well as opening up more export markets, are some of the key issues that need solving to help improve sentiment and fortunes in the agricultural sector,” Agbiz concluded.