Excessive rain, input costs weigh on Agribusiness Confidence Index

15th March 2022

By: Marleny Arnoldi

Deputy Editor Online

     

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The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) decreased by 12 points quarter-on-quarter to 62 in the first quarter of this year.

This follows the ACI’s second-highest level (74) on record in the fourth quarter of 2021, the highest level being the 75 reached in the second quarter of 2021.

Agbiz explains that a period of heightened optimism, supported by favourable agricultural production conditions, has dwindled owing to excessive rains at the start of the season, which caused damage in some areas; higher input costs; logistics challenges and impacts related to prevailing geopolitical tensions.

Declines were recorded in eight of the ten subindices comprising the index.

The turnover and the net operating income subindex declined by seven points to 86.

The sentiment was mainly dampened by the expected lower summer crop harvest, which negatively affected agribusinesses operating in field crops and livestock, and the agricultural machinery industry.

The market share of the agribusinesses subindex fell by one point to 76. Again, the agribusinesses in summer and winter crops were among the respondents who signalled weaker expectations.

Simultaneously, most of the respondents maintained a broadly unchanged view from the last quarter of 2021.

The employment subindex fell by two points to 60.

This mirrors the expected decline in summer crop harvest, and to an extent, some horticulture products after the early summer season excessive rains caused crop damages.

With that said, this change in sentiment should not be viewed as necessarily a decline in agricultural employment as a level above 50 still signals expansionary conditions for agricultural sector jobs.

“We think South Africa's primary agricultural jobs will likely remain at levels over 800 000, above the long-term average,” Agbiz states.

Confidence in the capital investments subindex fell by 13 points to 67. Rising farm input costs and general uncertainty about potential economic spillovers from the Russia-Ukraine War will likely limit farmers and agribusinesses’ flexibility to invest in new machinery or new business ventures.

The subindex measuring the volume of exports declined by one point from the previous quarter to 78 in the first quarter. This reflects the potential decline in summer crop harvest, some horticulture produce, and the volume of exports after that. That said, a level of 78 still indicates robust export conditions.

Confidence in general economic conditions fell by 25 points to 48 over the two quarters. This reflects the uncertainty in the current geopolitical environment, a general slowdown in the global economy, and more domestic events such as load-shedding, amongst other factors.

The general agricultural conditions subindex recorded the sharpest decline of 28 points to 60 in the first quarter.

The excessive rains since the start of the summer crop season, damage to crops in some regions and animal disease in livestock, all reflected in the respondents' downbeat mood about agricultural production conditions.

Importantly, however, this is still well above the 50-neutral mark, which shows that although production conditions are down from the previous season, they are not dire and remain at above-average levels.

In the first quarter, the indices for debtor provision for bad debt and financing costs fell by nine and 28 points to 45 and 18, respectively. This is favourable and reflects the tail end of the farmers' financial gains of the last two robust seasons, which enabled them to service their debts.

Agbiz chief economist Wandile Sihlobo says the agricultural sector is on solid footing despite the uncertainties created by the Ukraine conflict and the excessive rains in various regions of the country.

The industry is, however, most concerned about rising fuel, fertiliser and agrochemical costs, since these could negatively impact on farmers’ planting decisions in the coming season.

“We doubt the higher commodity prices will be sufficient to offset the rising costs fully. This is one area we will keep monitoring and engaging about in coming months.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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