Agribusiness Confidence Index jumps to 61 in the fourth quarter

1st December 2020 By: Marleny Arnoldi - Creamer Media Online Writer

Agribusiness Confidence Index jumps to 61 in the fourth quarter

The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation Agribusiness Confidence Index (ACI) has rallied to 61 points in the fourth quarter – its highest level since the third quarter of 2014.

This followed a notable recovery to 51 points in the third quarter of the year, implying that agribusiness’ optimism about business conditions in South Africa is rising.

Agbiz says the fourth-quarter improvement in the ACI likely reflects strong optimism about the 2020/21 production season on the back of expected higher rainfall across most regions of the country.

Additionally, the chamber explains that various high-frequency data shows that most of South Africa’s agriculture and agribusiness sectors performed relatively well in a year of unusually elevated uncertainty with minimal impact, at an aggregate level, from the Covid-19 crisis and related lockdown restrictions.

The ACI reflects the perceptions of at least 25 agribusiness decision-makers on the ten most important aspects influencing a business in the agricultural sector, including turnover, net operating income, market share, employment, export volumes and economic growth.

The index comprises ten subindices and most of these showed a notable uptick in the fourth quarter.

Agbiz chief economist Wandile Sihlobo says confidence regarding the turnover and the net operating income subindices soared by 32 and 35 points from the third quarter to 82 points each in the fourth quarter, respectively.

He explains that, for both these subindices, these are the highest levels since the third quarter of 2014.

Similar to the third quarter, the optimism is mainly supported by firms operating within the field crops, horticulture, livestock and financial services segments, owing to a large harvest in 2019/20, and an anticipated good season in 2020/21.

The sentiment regarding the employment subindex rebounded by eight points from the third quarter to 41. This is a preliminary indication that agricultural employment could recover somewhat in the coming quarters.

The subindex measuring the volume of exports improved by five points from the third quarter to 60 in the fourth quarter, as exports continued to soar on the back of large supplies and the relatively weaker domestic currency.

The perception on economic conditions improved by four points to 24 in the fourth quarter of this year. Nevertheless, this specific subindex is still far off the neutral 50-point mark, which indicates pessimism about South Africa’s broader economic growth fortunes.

Sihlobo notes that confidence regarding general agricultural conditions jumped by 15 points to 94 in the fourth quarter. This is the highest level since the inception of the ACI, which points to optimism about expected La Niña-induced rains in the 2020/21 agricultural season.

Meanwhile, the debtor provision for bad debt and financing costs subindices are interpreted differently from the other indices. A decline is viewed as a favourable development, while an uptick is not a desirable outcome as it shows that agribusinesses are financially constrained.

In the fourth quarter, sentiment regarding the financing costs fell by 15 points to 68, which is a favourable direction.

In the fourth quarter, the sentiment regarding the debtor provision for bad debt increased by eight points from the third quarter to 35, which is an unfavourable direction.

However, this subindex remains fairly low, suggesting that bad debts have not become a generalised problem at this stage, Agbiz states.

Meanwhile, the market share of agribusinesses subindex deteriorated marginally by two points from the third quarter to 62. This view was largely shared by agribusinesses operating in the livestock subsector, while others in various subsectors maintained an unchanged view from the previous quarter.

The capital investments confidence subindex fell by three points from the third quarter to 41. This was despite the robust agricultural machinery sales data this year. This pessimism could be underlined by generally tough financial conditions in agriculture, as cited by respondents to the ACI.