The Agbiz/IDC Agribusiness Confidence Index (ACI) for the third quarter of this year presents a picture of a sector that remained on a sound footing, but also confronted with a range of challenges, according to Agricultural Business Chamber chief economist Wandile Sihlobo.
The ACI released on Monday deteriorated further by seven points to 53 in the third quarter, following a two-point decline in the second quarter of this year.
Still, a level of the ACI above the neutral 50-point mark implied that agribusinesses remained cautiously optimistic about operating conditions in South Africa.
Higher input costs, friction in some export markets, persistent animal disease challenges, rising interest rates, intensified geopolitical risks which disrupted supply chains, and ongoing weaknesses in municipal service delivery and network industries remained the key factors that the survey respondents cited.
According to the index, the results still reflected broadly favourable agricultural conditions, albeit not as strong as the previous seven quarters.
This survey was conducted in the first two weeks of this month and covered agribusinesses operating in all agricultural sub-sectors across South Africa.
This moderation in sentiment suggested that 2022 could show contraction in South Africa’s agriculture gross value-added.
“Still, this does not mean the sector is in terrible shape. The base in 2021 is high and we see slightly lower harvests in some field crops this year,” Sihlobo said.
Looking ahead, the prospects of a weak La Niña weather pattern provided a good foundation for an excellent rainy season.
He said that this was notwithstanding the lingering challenges of higher prices of critical farm inputs such as fertiliser, agrochemicals, and fuel, which would put pressure on the finances of farmers and agribusinesses when the summer crop season starts in October.
“For the long-term growth of this sector, the need to improve the efficiency of ports, electricity supply and water, quality of roads, curbing crime that devastates the rail network, and improving bio-security should be prioritised by both government and the private sector,” Sihlobo said.
In his weekly note sent out to Agbiz members on Monday, Sihlobo said while the higher grains and oilseeds prices and harvest prospects might look reasonably supportive on the financial books in the near term, steep input costs had not provided much room for flexibility.
The financial conditions were possibly even more challenging for farmers in agricultural commodities that did not enjoy big price increases.
“Another critical factor for domestic farmers will be the performance of the rand, which is also key in determining the ultimate prices that farmers will pay to their various foreign suppliers of production inputs when planting begins. Moreover, with the current rising interest rates, the financial conditions will likely even be much more challenging compared to the previous two years when the interest rates were at lower levels, providing a breather for the indebted South African agricultural sector.”
Still, these cost pressures were unlikely to push the farmers away from the fields.
“We remain optimistic that the upcoming season will be favourable and that farmers could till the typical area for crops and maintain the roughly same area for horticulture. The favourable weather outlook, with prospects of a weak La Niña in the 2022/23 summer season, should bring good showers to support agricultural activity. We had worried that a La Niña could risk bringing excessive rains, as we saw at the start of the 2021/22 summer season, but current forecasts of a weaker one provide some comfort that the rains could be moderate,” Sihlobo said.
BUSINESS REPORT