Agribusiness confidence remains subdued

11th June 2019 By: Marleny Arnoldi - Creamer Media Online Writer

Agribusiness confidence remains subdued

Photo by: Creamer Media

The Agbiz/Industrial Development Corporation Agribusiness Confidence Index (ACI) weakened to 44 in the second quarter.

This followed a marginal improvement to 46 in the first quarter.

The index remained under the neutral 50-point, implying that agribusinesses were still downbeat about business conditions in South Africa.

The deterioration in sentiment in the second quarter was underpinned by seven out of the ten subindices that make up the ACI.

The turnover subindex decreased from 61 in the first quarter to 58 points in the second quarter, emanating from firms that operate in the summer grains and oilseeds, wool and livestock sectors.

Delayed and expected poor summer grains and oilseeds harvests weighed on the finances of agribusinesses that operate in the grain sector.

Additionally, the turnover subindex was affected by export impediments related to sanitary and phytosanitary measures that were yet to be resolved, which constrained exports over the past couple of weeks, despite South Africa having made strides in securing a lifting of the ban on wool exports to China.

Further, after having improved to 64 in the first quarter, the market share of agribusinesses subindex fell to 56 points in the second quarter on the back of expected lower output this year, specifically in summer grains and oilseeds and some horticultural products.

The employment subindex fell by six points to 48, which was the lowest level since the third quarter of 2015, which was a drought year.

Agbiz stated that confidence in employment had been affected by unfavourable weather conditions in the period, as well as agricultural employment having been under pressure generally, on par with the national unemployment level.

Agricultural employment fell by 1% from the corresponding period last year to 837 000.

The capital investments subindex fell by two points to 59 in the second quarter. It was nonetheless still above the neutral 50-point mark, implying that South African agribusiness was still a positive investment case.

However, the lack of clarity around land reform and water rights remained an overhang that could constrain the potential expansion in fixed investments, Agbiz cautioned.

The export volumes subindex fell by 21 points to 36, mirroring the expected reduction in agricultural output on the back of unfavourable weather conditions, and also reduced wool and other animal-based exports to China over the past couple of weeks.

The general agricultural conditions subindex fell by one point to 31 in the second quarter.

Agbiz said this still mirrored the tail-end effects of the below-average rainfall in the central and western parts of South Africa during the summer crop season.

This subsequently led to a reduction in South Africa’s 2018/19 summer grains and oilseeds areas planted, which were estimated at  33.7-million hectares, which was down 3% year-on-year.

Agbiz added that the general conditions negativity had overshadowed the  positive  sentiment from the winter crops growing areas, which had, so far, received good rainfall, with plantings expected to increase.

“On the upside, the perception regarding economic conditions improved by six points to 27. With that said, this was still well below the long-term average of 41 points.

“Moreover, the disappointing high-frequency data over the past few weeks suggested that South Africa's economic fortunes could remain constrained for the better part of this year,” commented Agbiz.

The net operating income confidence in the second quarter improved marginally by  one point  from  the first  quarter to 48. The observations across the respondents suggested that the optimism was driven by the horticultural sector, as well as financial and agrochemical entities.

Agbiz pointed out one data point that it observed closely was gross fixed capital formation, declining by 1% year-on-year to R17-billion in 2018.

“The new Cabinet needs to move quickly to clear lingering uncertainty about agricultural and land reform policy and biosecurity measures to unleash the full potential of this important sector and contribute to boosting the rural economies,” said Agbiz chief economist Wandile Sihlobo.