ACI falls eight points, but agriculture sector remains in good shape

13th September 2021 By: Marleny Arnoldi - Creamer Media Online Writer

ACI falls eight points, but agriculture sector remains in good shape

Photo by: Bloomberg

The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) has contracted back to 67 points in the third quarter, after having surged to an all-time high of 75 in the second quarter of the year.

Still, the current level reflects favourable conditions in the South African agriculture sector.

Agbiz says the optimism reflects both the large output and higher commodity prices that have benefitted farming businesses in the 2020/21 agricultural production season and the favourable outlook about the upcoming 2021/22 season.

The chamber mentions that the higher commodity prices and the positive weather outlook, which shows prospects for above-normal rain across most regions of South Africa, are supportive factors for agribusinesses.

The ACI in the second quarter recorded a fall of nine and seven points, respectively, in the turnover and net operating income subindices, to 82 and 84. That said, the current levels are still well above the long-term average.

The market share of the agribusinesses subindex fell by eight points from the second quarter to 70, which is also above the long-term average.

Agbiz says most agribusinesses have signalled an unchanged view from the second quarter and the deterioration in the sentiment is more of a technical matter than a major change in the opinion of respondents.

The employment subindex of the ACI declined by seven points to 59 in the third quarter, which has probably been influenced by the fact that this quarter has less activity related to harvesting of summer crops and some horticulture.

Sentiment on capital investments fell by 11 points in the third quarter, to 58. Still, the agribusiness sentiment is in contrast to some other observations, such as agricultural machinery sales, which have shown strong growth since mid-2020.

The subindex measuring the volume of exports sentiment deteriorated by six points from the second quarter to 72. Agbiz says a sizable harvest has sustained the sentiments about exports at fairly higher levels.

Still, there are growing concerns about the logistical challenges South Africa experiences, from inefficient port operations to destruction of infrastructure on the rail lines and cyberattacks on State-owned Transnet’s facilities.

The economic conditions subindex showed the sharpest decline of all the subindices, falling by 30 points from the second quarter to 48. Agbiz reports this is the only subindex that is below the neutral 50-point mark and explains that the change in the business sentiment speaks to the broad economic challenges that South Africa still faces.

The general agricultural conditions subindex deteriorated by 14 points from the second quarter to 69.

Agbiz states that the agricultural conditions are nonetheless relatively favourable across South Africa. 

In the third quarter, the sentiment regarding debtor provision for bad debt increased by 18 points to 68, which is an unfavourable direction and adds to the decline in the composite index.

This is surprising as farming businesses' finances have improved following the 2020/21 season harvest and higher commodity prices.

Meanwhile, the financing costs subindex fell by two points from the second quarter to 55, which is favourable and reflective of the current environment of lower interest rates.

Agbiz chief economist Wandile Sihlobo confirms that, while the ACI’s third-quarter results show deterioration from an all-time high in the second quarter, the sector is in good shape and heading into a favourable 2021/22 season.

"We expect the robust growth performance of between 6% and 7% year-on-year in agriculture's gross value added in 2021 from an already high base after the strong growth of 13.4% in 2020.

“Our only major concern is the ongoing glitches in the country's logistics services, both in the in-country and shipping ports centres. This is an area that needs increased attention for policymakers in an export-oriented agricultural sector like South Africa,” he concludes.