Excessive rainfall, load-shedding and the rising cost of farming inputs such as fuel, fertiliser and agrochemicals were some of the factors that led to a decline in business confidence in the farming sector during the first quarter of 2022.
The Agbiz/IDC agribusiness confidence index, which reflects the perceptions of at least 25 agribusiness decision-makers on the 10 most important aspects influencing businesses in the agricultural sector, moderated by 12 points to 62 in quarter one of 2022 after reaching its second-highest level on record in the fourth quarter of 2021.
Despite the notable decline, the index was still comfortably above the neutral 50-point mark, implying that agribusinesses remained generally optimistic about operating conditions in the country.
However, factors such as the current geopolitical environment, a slowdown in the global economy, higher input costs, and domestic events such as load-shedding were expected to negatively affect the farming and agribusiness sectors in SA.
According to Agbiz, nearly half of the responses to the survey were received after February 24, the day Russia invaded Ukraine.
“The full effect of the war in Ukraine had not yet been factored into the responses received for this quarter and as the situation unfolds, and the impact of world markets becomes more apparent, it could have a larger influence on business confidence in the second quarter,” said Wandile Sihlobo, Agbiz chief economist.
The prices of some agricultural commodities and farming inputs rose during the first weeks of March as the ongoing war in Ukraine raised fears about export disruptions and resultant supply constraints of products such as wheat, sunflower oil and fertiliser.
Russia and Ukraine are the first- and third-largest exporters of wheat, respectively, and together these countries account for about 30% of global wheat exports. They are also the largest exporters of sunflower oil, accounting for about 78% of world exports.
A disruption in fertiliser exports from Russia, a major exporter of a variety of crop nutrient products, has resulted in further upwards pressure on fertiliser prices that were already at historical highs in 2021 due to logistical challenges created by the Covid-19 pandemic.
According to the UN Food and Agriculture Organization, international fertiliser benchmark prices rose to all-time highs in 2021. The most notable increases were for nitrogen fertiliser. Prices for urea, a key nitrogen fertiliser, more than trebled in 2021.
“The issues we are most concerned about right now on are the rising fuel, fertiliser and agrochemicals costs, which could negatively impact farmers’ planting decisions in the coming season,” said Sihlobo.
It was unlikely, he said, that higher commodity prices for products such as wheat and sunflower oil would be sufficient to fully offset the rising costs.
“We don’t expect the underlying factors that drove the decline in confidence levels in the first quarter to ease in the immediate term.”
Despite the rise in farm commodity prices, their outlook for food price inflation for the year had remained stable at 5% to 6%, Sihlobo told Business Day.
This supported the view that local and global logistical challenges would cause sharp price increases for some products but put muted pressure on others.
The largest price increases would be for grains and wheat products, as well as for vegetable oils, while fruit, vegetables and meat prices would be less affected.
Higher grain prices would have a knock-on effect on animal feed prices, but according to Sihlobo, this could prompt farmers to opt to keep their feed bills from inflating too much by increasing slaughter numbers. This would then increase the supply of meat, which would stop prices from rising in line with grain prices.
The SA citrus harvesting season was just getting under way, and according to Justin Chadwick, the CEO of the Citrus Growers’ Association, early shipments of lemons destined for the Russian market have been affected.
Chadwick said in a statement that the Russian market usually accounted for about 10% of SA’s citrus exports, but no fresh produce has been shipped to the region over the past few weeks by most countries. “Should this situation continue, when the export season officially kicks off in April, other varietals such as grapefruit and soft citrus will also be impacted,” he said.
If exporters were unable to redirect the fruit to other markets, this could result in an increase in local supply.
Update: March 15 2922
This article has been updated with additional information.
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