It has been quite some time since South Africa’s agricultural sector has had as good a season as the current one, Agricultural Business Chamber (Agbiz) states in the latest Agbiz/Industrial Development Corporation Agribusiness Confidence Index (ACI).
The index reached a record high of 75 in the second quarter of the year, compared with 64 in the first quarter of the year.
Chief economist Wandile Sihlobo says these results reflect favourable conditions for all subsectors of agriculture, with various crops set to reach record output levels.
This comes at a time when commodity prices locally and globally are at higher levels – supported by growing demand from China, as well as dryness in parts of South America limiting supply from that region.
“Such an environment of large yields and higher prices is not a usual occurrence in South Africa and has boosted farmers' incomes and sentiments about business conditions,” Sihlobo explains.
The turnover and net operating income subindices of the index lifted by five and one points, respectively, to both reach 91 in the second quarter of the year, indicating a confidence rise by agribusinesses and rising demand for agricultural products and key farming equipment.
The market share of the agribusinesses subindex rose seven points in the second quarter to reach 78, while the employment subindex increased by 23 points to reach 66 in the second quarter.
The improvement in sentiment regarding employment conditions in agriculture raises hopes of some reversal of recent job losses in the sector.
Another positive of the ACI was the capital investments index jumping 23 points to 69, which is supported by growth in agricultural machinery sales.
The subindex measuring sentiment about the volume of exports improved by 22 points quarter-on-quarter to 78, which is driven by the expectation of higher export volumes in the coming quarters of the year, following strong export volumes in the first quarter.
Moreover, the economic conditions subindex increased by 39 points to 78 in the second quarter of the year, which is in line with the sentiment that South Africa is in recovery mode from the Covid-19-induced economic shock in 2020.
Another positive development was the sentiment around financing costs dropping five points to 57, which is a favourable direction and reflective of the current environment of lower interest rates.
The sentiment around debtor provision for bad debt increased by seven points to 50, which is an unfavourable direction.
Still, Sihlobo says this subindex remains relatively low, suggesting that bad debts have not become a major challenge at this stage in the sector.
The general agricultural conditions subindex deteriorated marginally by two points to 83 in the second quarter of the year, which is still well above the neutral 50-point mark, reflecting favourable agricultural conditions.
“We are in a good year from a production perspective. Our main concern at the moment is around the biosecurity challenges in the livestock and poultry sectors. These are areas that should be addressed to sustain the positive momentum in agriculture," Sihlobo says.