The Agbiz/Industrial Development Corporation (IDC) Agribusiness Confidence Index declined by one index point to 56 points in the second quarter of this year.
Despite the slight decline in confidence, the sector remains in expansionary territory.
This is the fourth consecutive expansionary reading, indicating that agricultural activity continues to stabilise following the damage of the 2015/16 drought.
Among the ten subindices making up the Agbiz/IDC Agribusiness Confidence Index, the capital investment, market share, employment, volume of exports and debtor provision for bad debt subindices were the key underlying drivers of the sustained optimism in confidence in the second quarter.
“While many subindices within the index showed different movements, the key underlying factor behind this sustained optimism is the improvement in weather conditions, particularly the recent summer rainfall and its impact thereafter on crops,” Agbiz agricultural economist Wandile Sihlobo said on Monday.
The general improvement in these subindices is partly in line with the robust recovery in agricultural production, particularly summer grains and oilseeds.
“Meanwhile, the decline in other subindices, namely turnover, net operating income, economic growth, general agricultural conditions and financing cost, mirror the tail-end effects of the 2016 drought, particularly businesses operating in the horticulture, wine and insurance industries,” he said.
He added that confidence regarding the turnover subindex declined by 11 index points in the second quarter to 61, showing an expectation of lower profitability relative to the previous quarter.
For horticulture agribusinesses with farms that harvest in the first few months of the year, volumes were down owing to the 2016 El Nino-induced drought.
Moreover, the insurance business received a high volume of claims following the drought, which eventually weighed on their financial standing.
In a similar trend to that of the turnover subindex, the confidence in net operating income subindex marginally declined by one index point to 68 in the first quarter.
Sihlobo stated the perception in the market share of the business subindex improved by two index points from the previous quarter to 68.
“These results reflect the potential benefits of the 2017 summer rainfall, particularly in certain grain operating businesses, which recently allowed farmers to deliver maize to silos with relatively higher moisture levels,” he said.
The perceptions regarding employment in the agricultural sector improved, with this subindex reaching 59 in the second quarter, up from 56, suggesting the improved expectation of seasonal employment as some horticulture and grain farms begin the harvest period, which requires more labour.
Confidence in the export volumes subindex improved by three index points from the previous quarter to 58, largely on the back of expected large grains and oilseed supplies.
The general agricultural conditions subindex declined by five index points in the second quarter of this year to 64, underpinned by unfavourable dry weather conditions in the Western Cape province, which is a key producer of winter grains, horticultural products and wine.