The Agbiz/IDC Agribusiness Confidence Index (ACI) recovered by 10 points to 48 in the third quarter of this year following a sharp decline in the second quarter where it reached the lowest level since the 2009 global financial crisis.
Wandile Sihlobo, chief economist of the Agricultural Business Chamber of SA (Agbiz), yesterday said the ACI results for the third quarter showed some improvement in the sentiment in the sector.
“Although we are moving towards a promising summer season, and that may bring increased positive activity in the South African farming sector, the long-term growth prospects of the sector, which would also deliver jobs, hinges on the GNU’s ability to resolve the challenges of the network industries, improve the functioning of the municipalities and open new export markets,” Sihlobo said.
The extreme pessimism in the previous survey was partly attributed to election-related uncertainty.
The index authors said the formation of the Government of National Unity (GNU) appeared to have eased that concern. They said the focus was now back on fundamental agricultural matters.
“While the improvement in ACI to 48 points is encouraging, it is below the neutral 50-point mark, implying that South African agribusinesses remain somewhat concerned about business conditions,” read the report.
“The recent drought in the 2023-24 summer crop, poorly maintained road infrastructure, weak municipal service delivery, persistent animal disease challenges and heightened geopolitical tensions remain the primary concerns for the sector.”
Sihlobo said while organised agriculture continued build a productive relationship with Transnet, there remained room for improved port efficiency.
This survey was conducted in the first week of September, covering businesses operating in all agricultural subsectors across South Africa.
John Hudson, head of agriculture at Nedbank Commercial Banking, said there has been a shift in momentum following the positive outcome of the elections, and this was reflected in the Agbiz/IDC Agribusiness Confidence Index improving by 10 points to 48.
“While this positive shift is welcomed, if we are to maintain an upward trend and move above the 50-point mark, there is a need for the improved sentiment to translate into tangible results,” Hudson said.
“This means tackling and making progress on perennial challenges such as the weak local economy, poorly maintained infrastructure, port inefficiency, improved market access, poor municipal service delivery and animal disease challenges,” Hudson said.
Dr Marlene Louw, senior economist at Absa AgriBusiness, said their experience of sentiment in the agricultural industry mirrored what the Index reported for the third quarter.
“The improvement in sentiment is likely to gain further momentum into the fourth quarter as the effects of a looming interest rate cutting cycle and lower fuel prices are likely to improve the financial position of consumers which would also, in turn, provide support for agricultural industries and prices,” Louw said.
“In 2025, the effect of a La Nina event could further support industry performance and we are likely to see the ACI starting to reflect positive sentiments above the 50-point neutrality mark. This would however be limited by certain structural issues such as municipal inefficiencies and infrastructural issues.”
Meanwhile, Agbiz said there was a strong investment case to be made for the eastern regions of South Africa and the former homelands that can benefit from Middle-East and Chinese agricultural trade capital.
The agribusiness association said these areas were typically on the periphery of agricultural progress because of poor land governance and weak infrastructure, which made them isolated from the formal value chains of the food, fibre, and beverage sectors.
“In some areas, the transaction costs of moving agricultural produce to the consumption points become too high because of the lack of roads, rail and storage facilities. In the regions historically part of the commercial farming sector, the deteriorating network infrastructure is also increasingly a significant cost driver for businesses. These include roads, rail, water, dams, storage facilities, and the on-farm infrastructure.”
BUSINESS REPORT