The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) improved to 64 in the first quarter of 2021, compared with 61 in the fourth quarter last year.

Agbiz says these results likely reflect the robust performance of South Africa's agricultural sector in 2020, where gross value added expanded by 13.1% year-on-year, as well as positive early signs for another season of large harvests in 2020/21 from most subsectors.

Agbiz chief economist Wandile Sihlobo says the ACI first-quarter results signal that South Africa's agricultural sector will most likely experience another year of robust growth.

“The underpinning driver is the favourable weather conditions that have allowed farmers to plant on time and increase area plantings for various crops. The higher commodity prices have also improved farmers' finances somewhat, contributing to better sentiment.

“Still, industry-by-industry analysis shows that the positive growth numbers are only an aggregate story of agriculture. The wine and tobacco industries, which were arguably hardest hit by the ban on sales in various lockdown stages, remain financially constrained and will take longer to recover,” he explains.

Most of the index’s ten subindices increased in the first quarter of the year.

The turnover and the net operating income subindices lifted by four and seven points from the last quarter of 2020 to 86 and 89, respectively. Except for agricultural insurance providers, all other agribusinesses that participated in the survey expressed optimism with respect to these subindices.

This is owing to a large harvest in the 2019/20 production season, which boosted financial conditions.

The market share of the agribusinesses subindex improved by ten points from the last quarter of 2020 to 71, which is the highest level since the last quarter of 2016.

This was primarily underpinned by agribusinesses operating in field crops and financial services, while others expressed an essentially unchanged view.

The employment subindex increased by just two points to 43 in the first quarter. At this level, this subindex suggests that agribusiness remain cautious about increasing staffing levels.

“It will be interesting to see how this evolves in the coming quarters given expectations of another large harvest. The recent increase in the agricultural minimum wage caused discomfort amongst agricultural role-players, especially the farmers operating in the wine industry.

“This industry already faces cash flow challenges emanating from the ban on alcohol sales during various stages of the lockdown. However, it is too early to know the impact of the wage adjustment on agricultural sector employment,” Sihlobo comments.

After declining in the last quarter of 2020, the capital investments subindex rebounded by five points to 46. There is also evidence of improved sentiment in sales of movable agricultural assets such as tractors, which have been robust since mid-2020 and underpinned by improved farmers' finances following the large harvest in the 2019/20 production season.

The economic conditions subindex jumped by 16 points to 39 in the first quarter, its highest level since the last quarter of 2018. Nevertheless, this specific subindex is still far off the neutral 50-point mark, which indicates relatively pessimistic expectations about South Africa's broader economic growth fortunes.

The 3.6% year-on-year economic growth that the South African Reserve Bank forecasts for this year will not be sufficient to lift South Africa's fortunes back to the pre-Covid-19 levels.

In the first quarter, the sentiment regarding financing costs fell by six points to 62, which is a favourable direction and reflective of the current environment of lower interest rates.

The sentiment regarding the debtor provision for bad debt increased by eight points to 43, which is an unfavourable direction. Still, this subindex remains relatively low, suggesting that bad debts have not become a broader challenge at this stage in the sector.

Meanwhile, the general agricultural conditions subindex deteriorated marginally by eight points from the last quarter of 2020 to 86 in the first quarter.

Still, this is well above the 50-point neutral mark and generally reflects favourable agricultural conditions in the country, supported by good rains since the start of the season.

Notably, the current production conditions are favourable for all agricultural subsectors.

Surprisingly, Agbiz reports the subindex measuring the volume of exports sentiment declined by four points to 56 in the first quarter of 2021.

The expected sizeable domestic production could lead to higher volumes of exports this year.

“Therefore, we are surprised to see a slightly weaker sentiment about export conditions, albeit still above the 50-point mark. We suspect that the lockdowns in some European countries in the first quarter of 2021 might have contributed to a decline in sentiment in this subindex.”