Confidence within the agricultural sector plunged to its lowest in 15 years in the second quarter of this year after the industry was the main positive contributor to the gross domestic product (GDP) in the first quarter.
The Agbiz/IDC Agribusiness Confidence Index (ACI) released yesterday, remained depressed and reached 38 points in the three months to June from 40 points in the previous quarter.
This was the lowest level in the ACI since the third quarter of 2009, which was in the global financial crisis.
Agricultural Business Chamber (Agbiz) chief economist and author of the index, Wandile Sihlobo said this ACI print implied that agribusinesses remained downbeat about business conditions in the country.
Sihlobo said there remained some pessimism in the sector, although some subsectors had an impressive start to the year.
He said this stemmed from the overriding impact of the mid-summer drought, combined with long-standing inefficiencies in the network industries.
“While the farming sector may have worried about the political outlook at the time of the survey, the reaction to the newly formed Government of National Unity has been widely positive, and the financial markets reaction reflects that optimism,” Sihlobo said.
Zama Sangweni, economist at Absa AgriBusiness, said lowered confidence did not come as a surprise as the impact of the El Niño weather phenomenon, still at play during the second quarter, was always perceived as more negative.
“Animal disease challenges have also affected our export potential for red meat, with the most recent Foot-and-Mouth Disease putting prices under pressure,” Sangweni said.
“Our view is however that the sentiment will have bottomed out in the second quarter of 2024 and forward looking we expect that stability in biosecurity management, more stable political sentiments and a projected La Niña for the 2024/25 summer grain season would boost confidence.
“This could possibly be further supported by macroeconomic factors like a stronger rand and the start of a cutting cycle in interest rates towards the end of the year.”
The mid-summer El Niño-induced drought’s impact on summer grains and oilseed production was said to be one of the major factors that weighed on the sentiment.
The drought coincided with the long-standing challenges of inadequate road infrastructure and poor municipal service delivery.
The lingering animal disease challenges and heightened geopolitical tensions were also the primary concerns for the sector.
Moreover, while the farming community recognises the improvements in Transnet’s operations, Agbiz said they highlight the need for continuous work to address the inefficiencies of the ports and rail network.
Uncertainty about the formation of the government at the time of the survey may have added to the downbeat mood among the agribusinesses.
This survey was conducted between June 10 and 19, covering businesses operating in all agricultural subsectors across South Africa.
Nedbank Commercial Banking’s head of agriculture, John Hudson, said the agriculture industry has faced significant challenges over the past 12 months.
“The period leading up to the elections was marked by uncertainty, which may have affected sentiment. A pre-election survey confirmed a decline in confidence,” Hudson said.
“Despite the numerous local and global challenges, the agricultural sector has shown resilience. The election’s market-friendly outcome, which is seen as favourable for businesses has the potential to boost sentiment and stimulate increased activity in the latter half of 2024 and into 2025,” he said.
However, FNB Commercial senior agricultural economist, Paul Makube, said the seasonal outlook has turned positive with weather forecasts showing El Niño having dissipated and transitioning into the La Niña weather pattern which improved prospects of good rains for the 2024/25 crop season.
“On the input side, international fertilizer prices remain significantly lower relative to last year and fuel prices have eased recently and are likely to sustain the current momentum given the rand and crude oil price trajectory,” he said.
BUSINESS REPORT