Sun, 26 Jan 2020

Agribusiness confidence has dipped for the sixth consecutive quarter - the longest period it has trended below the neutral 50-point mark in nine years, the Agricultural Business Chamber of South Africa said in a statement this week.

The Agbiz/ IDC Agribusiness Confidence Index, which decreased from 46 points in the third quarter to 44 in the last quarter of 2019, was conducted in November and covers agribusiness operating in all agricultural sub-sectors across the country. It implies that agribusinesses are still downbeat about business conditions in South Africa, the organisation said.

Downbeat sentiment was largely among firms operating in field crop producing areas, as well as livestock.

Six out of 10 sub-indices drove the decline in sentiment.

"The decline in the ACI was mainly underpinned by net operating income, employment, the volume of exports, economic conditions, general agricultural conditions and debtor provision for bad debt [...]," the statement noted.

The perception of general economic conditions in the country fell by 15 points to 9 - the lowest level since the second quarter of 2016.

"This goes to show that agribusinesses are not enthused about the economic outlook, and the recent GDP data for the third quarter of this year, which showed 0.6% quarter-on-quarter seasonally adjusted and annualised rate contraction, corroborates this sentiment," the Chamber said.

Exports

The sub-index measuring the volume of exports fell from 50 points in the third quarter of the year to 39 in the fourth quarter. "This is consistent with the aforementioned points that fears of drought could lead to poor crop production, which in turn would affect exports," the statement said.

"This is not only a matter of the 2019/20 production season, but also the 2018/19 season where major grains harvest fell by double-digit levels from the previous season."

Fears that the new foot-and-mouth disease outbreak could lead to another wide-scale ban on livestock exports also weighed negatively on sentiment, the statement said.

Jobs

Jobs had a major impact, with the employment sub-index deteriorating by five points from the third quarter to 53. However, Agbiz noted, this sub-index still remained above the neutral 50-point mark.

"The sub-sector that was relatively pessimistic about employment conditions was the field crop sector, which can partly be explained by fears that the current drought could lead to reduced plantings in the 2019/20 season and thereafter activity on farms," the organisation said.

Drought

After recovering from 31 points in the second quarter to 42 in the third - when there were still prospects of good summer rains going into 2020 - confidence regarding general agricultural conditions slipped back to 31 in the last quarter, said the Chamber. This was mainly driven by a drastic change in the weather outlook to prospects of drought in several areas, combined with a late start to summer rainfall, which had a negative impact on summer crop planting.

Sub-indices that showed an improvement in confidence included sentiments regarding the turnover, market share of agribusinesses, capital investment and financing costs of agribusiness.

The capital investments confidence sub-index remained flat from the third quarter at 50 points.

"Similar to the previous quarters, the consistent view that we continue to hear from agribusiness leaders is that the lack of clarity regarding land reform and water rights, and also biosecurity challenges and poor shipping ports' infrastructure remain," said the Chamber.

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