The agribusiness confidence index (ACI) for the second quarter of 2024 has dropped to the lowest level since the global financial crisis of 2009.
This reflects a stark downturn in confidence among agribusinesses and widespread pessimism in the sector.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said El Niño-induced drought’s effect on summer grains and oilseed production was one of the major factors weighing on sentiment.
“The drought coincided with the long-standing challenges of inadequate road infrastructure and municipal service delivery,” said Sihlobo.
Lingering animal disease challenges and heightened geopolitical tension were also of primary concern in the sector. “While the farming community recognises the improvements in Transnet’s operations, they highlight the need for continuous work to address the inefficiencies of the ports and rail network,” he said.
The ACI consolidates 10 subindices to provide a comprehensive outlook on sentiment in the sector. In the second quarter of 2024, the index saw a mixed performance across its components — five subindices declined while the others showed slight improvement
One glaring setback was in the turnover subindex, which fell 22 points from the first quarter of 2024 to 31 points. This is the lowest level since the second quarter of 2020. The turnover downturn reflects pessimistic expectations on coming summer grains and oilseed harvests, the report said. This sentiment was worsened by elevated input costs compared with pre Covid-19 levels, which further burdened businesses across the sector.
Similarly, the net operating income subindex fell 13 points from the first quarter of 2024 to 35 points, underscoring the impact of the midsummer drought on the profitability of farming businesses.
Lower income expectations reflect challenges agribusinesses face in maintaining profitability amid adverse weather and higher operational costs.
“The employment subindex fell by 12 points from the first quarter of 2024 to 38. This was a surprise, given [that] while the production conditions have been tough for some commodities the employment conditions held up in the first quarter of the year, supported by robust horticulture production and resilience in some regions,” said Sihlobo.
The capital investments subindex of the index dropped four points from the first quarter of 2024 to 46 points in the second quarter. This was aligned with the drop in sales of tractors and combine harvesters since the beginning of the year.
The subindex measuring export sentiment also plunged, indicating a deterioration in the outlook for agricultural export volumes. This suggests that exports for the year may fall from the record high of $13.2bn in 2023.
Despite robust agricultural exports in the first quarter of 2024 — a 6% year-on-year increase driven by strong performances in horticulture, wine and livestock products — the sharp drop in export sentiment in the second quarter painted a different picture for the rest of the year.
“There remains some pessimism in the sector, though some subsectors have had an impressive start to the year. This stems from the overriding impact of the midsummer drought, combined with the long-standing inefficiencies in the network industries,” said Sihlobo.
He said that 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 could bring more optimism.
The market share subindex of the index bucked the trend and rose six points in the review period to reach 65 points.
The general economic conditions subindex also showed recovery in the quarter.
While still below the neutral mark of 50, this improvement suggests a slight uptick in optimism about overall economic conditions among agribusiness respondents due to expectations of less load-shedding this year. It is broadly consistent with improvements in various market analysts’ GDP forecasts.
“The subindices of the debtor provision for bad debt and financing costs are interpreted differently from the abovementioned indices.
“A decline is viewed as a favourable development, while an increase signals growing financial strain,” said Sihlobo.
Second-quarter provision for bad debt was up by three points at 31, an unfavourable development showing “prospects of harsh financial conditions in some farming businesses, possibly those in summer grains”.
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