ACI edges two points lower for the second quarter; higher costs, rates a concern

13th June 2022 By: Marleny Arnoldi - Deputy Editor Online

ACI edges two points lower for the second quarter; higher costs, rates a concern

Photo by: Bloomberg

The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) has edged lower by two points to 60 in the second quarter of the year.

This follows a 12-point decline in the first quarter of the year, as agribusinesses are bearing the brunt of rising input costs, biosecurity concerns, hikes in interest rates, intensified geopolitical risks and ongoing weakness in municipal service delivery.

Still, a level above the neutral 50-point mark suggests that businesses are broadly optimistic about operating conditions in South Africa.

Of the ACI’s ten subindices, four declined in the second quarter of the year.

The turnover subindex grew by seven points to 93, which is the highest level since the third quarter of 2015. The index is supported by higher agricultural commodity prices and an expectation of decent harvests in field crops and horticulture.

The net operating income subindex remained unchanged at 79.

The market share of agribusinesses index fell by five points from the first quarter to 71 in the second quarter, with businesses in the horticulture, agricultural machinery and financial services sector citing weaker expectations.

The employment subindex increased by five points to 64, which marks the normal busier time of year, with harvesting of summer crops and various horticulture products occurring.

Encouragingly, the capital investments subindex rose by six points to 73, despite rising input costs and added pressure on farmers and agribusinesses. 

Agbiz explains that tractor and combine harvester sales have remained positive for the first five months of the year, as it has been over the last two years as well.

The subindex measuring the volume of exports declined by six points from the first quarter to 71, reflecting an expected decline in summer crop and wine grape harvests, as well as the temporary stoppage of livestock product exports, owing to an outbreak of foot-and-mouth disease.

The general economic conditions subindex fell by five points to 43, mirroring the uncertainty triggered by recent geopolitical tensions, inflation concerns, a general slowdown in the global economy and domestic events such as load-shedding.

Moreover, the general agricultural conditions subindex declined by six points to 54 in the second quarter, owing to continued rains delaying the summer crop harvest time in some areas.

The subindices for the debtor provision for bad debt and financing costs fell favourably by two and 14 points to 43 and four, respectively. This reflects the tail end of the farmers’ financial gains of the last two robust seasons, which enabled them to service their debts.

Still, the rising input costs and expected interest rate increases are crucial concerns going forward.

Agbiz confirms there are many challenges hovering over South Africa’s agricultural sector, but the ACI’s second-quarter results present a picture of sound footing nonetheless.

“The current good position that South Africa’s agriculture enjoys should not be taken for granted, as we see numerous risks ahead. These include rising prices of inputs such as fertiliser, agrochemicals and fuel.

“The ongoing war between Russia and Ukraine, and the supply chain disruption that has ensued, remains a major concern for the sector. However, the longer-term challenges are within our reach [to remedy],” says Agbiz chief economist Wandile Sihlobo.

He adds that South Africa can still improve the efficiency of its ports, electricity supply and water, quality of roads, crime rates and biosecurity.