Race-based water regulations stood out as one of the factors that have plunged confidence in the SA commercial agriculture sector to its lowest levels since the height of the pandemic-induced restrictions.
The Agbiz/IDC Agribusiness Confidence index (ACI), which measures the perceptions of at least 25 agribusiness decisionmakers on various aspects affecting the sector, remained unchanged at 44 in the second quarter of 2023, from the previous quarter.
This is the lowest level since the second quarter of 2020 when Covid-19 lockdown restrictions were first implemented, and the third consecutive quarter below the neutral 50 point mark, implying that the commercial agricultural sector is pessimistic about prevailing business conditions.
The survey respondents cited intensified geopolitical tension, unfavourable draft water regulations, persistent episodes of load-shedding, rising interest rates, poor road conditions and ongoing weaknesses in municipal service delivery as their prime concerns, and are affecting their confidence in the country’s economic prospects.
Proposed changes to the Water Act by water & sanitation minister Senzo Mchunu have unsettled the commercial agriculture sector. The minister seeks to introduce rules that will make water licences conditional on farmers having a black shareholding of between 25% and 75%, depending on their water use or storage.
“These factors have not only affected agribusinesses’ operations but also their investment decisions and outlook for the sector,” said Agricultural Business Chamber of SA (Agbiz) chief economist Wandile Sihlobo.
The proposed water regulations have polarised the agricultural sector, drawing sharp criticism from established, mostly white commercial farmers and praise from black commercial farmers, who say business confidence for them is much lower than broader sentiment.
“How are you going to do business if you’re not getting water,” said Lennox Mtshagi, president of the Black Farmers Association. "(These regulations) are going to boost business confidence for black farmers because black farmers can’t expand their businesses due to water issues, whereas their neighbours’ businesses are expanding.”
Tallie Giessing, chair of the SA Agricultural Machinery Association, which tracks the sector’s investments in farming equipment, said while its policy goals behind the regulations are not unreasonable, the proposal has soured the mood in some SA farms.
“The proposal is causing some concern, but I also think that through discussions solutions would be found,” Giessing said.
The survey, conducted in the first two weeks of June and covering businesses in all agricultural subsectors across SA, also showed that confidence declined across most of the subindices measured, with the exception of net operating income and export volumes, which improved slightly due to relatively high crop prices and solid export activity in 2022.
SA recorded its third-largest maize harvest on record in 2022/23, as well as a record soya bean harvest. The country also increased its agricultural exports by 3% year on year to $12.8bn (about R234bn) in 2022.
The sector was among the biggest contributors to GDP, which expanded by a much larger-than-expected 1.6% in the third quarter of 2022.
However, these positive developments were overshadowed by the effects of excessive rain at the start of the 2022/23 summer crop production season, which created challenges for farmers and agricultural role players, as well as concern about the effect that power cuts could have on areas under irrigation.
“There remains great potential for growth in the sector, but that can only materialise if there is a favourable policy environment and supporting infrastructure,” Sihlobo said.
He added that addressing the biosecurity issues, improving roads and opening more export markets were key to improving sentiment and the sector’s fortunes.
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