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Africa|Business|Environment|Export|Financial|Industrial|Infrastructure|Ports|rail|Road|Service|Transnet|Infrastructure|Operations
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africa|business|environment|export|financial|industrial|infrastructure|ports|rail|road|service|transnet|infrastructure|operations

El Niño dries up South Africa’s agricultural business confidence for the second quarter

24th June 2024

By: Marleny Arnoldi

Deputy Editor Online

     

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The Agricultural Business Chamber of South Africa (Agbiz) and Industrial Development Corporation’s Agribusiness Confidence Index (ACI) reached a 15-year low of 38 points in the second quarter of the year.

This is the lowest level since the third quarter of 2009 and compares with a level of 40 in the first quarter of the year.

The level of 38 suggests that agribusinesses are downbeat about business conditions in the country, with the El Niño-induced drought’s impact on summer grains and oilseed production being one of the major factors that weighed on sentiment.

The drought coincided with existing challenges of inadequate road infrastructure, municipal service delivery, lingering animal disease outbreaks and heightened geopolitical tensions.

Uncertainty about the formation of the national and provincial government at the time the ACI survey for the second quarter was conducted may have also added to the downbeat mood among agribusinesses.

Agbiz says the farming community recognises the improvements in Transnet’s operations, but believes more work is needed to address inefficiencies at the country’s ports and on the rail network.

Five of the ACI’s ten subindices declined in the second quarter, with the turnover subindex having decreased by 22 points to 31 in the second quarter. This reflects the expectations of poor summer grain and oilseed harvests in an environment where input costs remain high compared with pre-Covid-19 levels.

Similarly, the net operating income subindex decreased by 13 points to 35 in the second quarter, which reflects the impact of the mid-summer drought on farming business’ income.

The employment subindex lowered by 12 points to 38 in the second quarter, which Agbiz says may reflect the drought’s impact on jobs despite employment numbers in agriculture having grown by 6% year-on-year in the first quarter of the year to 941 000.

The capital investments index decreased by four points to 46 in the second quarter, which Agbiz says is unsurprising, as tractor and combine harvester sales have generally declined since the start of the year.

Moreover, the volume of export subindex decreased by 14 points to 21 in the second quarter, which signals the potential decline in export volumes this year from what had been record exports of $13.2-billion in 2023.

Admittedly, Agbiz explains, the first-quarter agricultural exports were robust on the back of strong horticulture, wine and livestock product exports, but the full year’s export activity may be weak compared with the prior year.

Some of the mild improvements to the ACI included the market share of the agribusiness subindex having increased by six points to a level of 65 in the second quarter and the general economic conditions subindex having recovered by nine points to 38.

“This slight recovery in the mood about economic conditions could be linked with expectations of a reduction in loadshedding this year and it is broadly consistent with improvements in various market analysts’ GDP forecasts,” Agbiz states.

The general agricultural conditions subindex grew by 28 points to a level of 46 in the second quarter, which shows optimism about the end of the intense El Niño cycle and the expected transition to La Niña later this year, which will ensure more rain into the 2024/25 season.

The debtor provision for bad debt subindex increased by three points to 31 in the second quarter, which is an unfavourable development and shows prospects of harsh financial conditions in some farming businesses, possibly those in summer grains.

The financing costs subindex declined by four points to a level of 23 in the second quarter, signalling that agricultural firms may believe the interest rate would soon start to decline. This is important in a sector with more than R205-billion in farm debt, Agbiz says.

There ultimately remains pessimism in the agriculture sector, although some subsectors had an impressive start to the year. Perhaps sentiment in the ACI will tick up following the formation of the new government, which has been positively received in the financial markets, Agbiz notes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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