The Agricultural Business Chamber (Agbiz), in support of the Industrial Development Corporation (IDC), developed the Agbiz-IDC Agribusiness Confidence index 16 years ago. It has become a reputable index that is widely used by stakeholders such as agribusinesses, organised agriculture, economists, analysts, researchers and academics, among others.
The index is of importance because, among many other things, it projects how SA’s agricultural GDP might perform in succeeding quarters. Broadly, the index covers the 10 most important aspects, or sub-indices, influencing business activity in the agricultural sector — turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor-provision for bad debt and financing costs.
An index reading above 50 points indicates expansion in agribusiness activity, and the inverse is also true.
I never thought about the intricacies of calculating the final numbers until I joined Agbiz. This is when I got to appreciate the comprehensiveness of this index, thanks to the support from Agbiz and the engagement with the index’s survey respondents.
The first and second quarter results of the index in 2016 accurately reflected the negative effects of the 2015-16 El Niño-induced drought on SA’s agricultural sector. This first half of 2016 was a trying time for all role players in the sector. But in the third quarter, the index signalled a turning point as it reflected a recovery of 13 index points to reach 60 points, the highest reading since the third quarter of 2014.
Given the prevailing prolonged tough agricultural conditions, such vibrancy was a much needed dose of optimism for a rebound. Encouragingly, the fourth quarter index survey results showed SA’s agribusinesses are still holding a relatively optimistic view regarding business conditions in the country. Although the overall index declined by five points to 55 index points, it is still above the 50-point threshold.
The quarter-on-quarter survey also showed a decline in the index, but it is important to highlight that this change was supported only by three sub-indices. Seven out of 10 sub-indices showed expansion, with the exception of the turnover, net operating income and employment sub-indices, which were the key drivers of this decline. To some extent, the decline in these sub-indices reflects the aftermath of the drought.
More specifically, confidence regarding the turnover sub-index dropped by eight points to 67 points in the fourth quarter of 2016 from the previous quarter, which suggests that some agribusinesses may be making losses, particularly the ones operating in grain-producing areas. Lower output that was seen in the 2015-16 production season resulted in lower storage and handling income for agribusinesses.
In a similar trend as the turnover sub-index, the net operating income sub-index dropped by 18 index points quarter-on-quarter to 47 points in the fourth quarter of 2016, as agribusinesses suffer the effects of the drought.
The perceptions regarding employment in the agricultural sector fell in the fourth quarter. The sub-index fell from 63 points quarter on quarter to 53 points. It appears that agribusinesses’ perception regarding employment was influenced by the views expressed with respect to the net operating income sub-index.
Meanwhile, general improvement in other sub-indices is in line with prospects for the 2016-17 production season. Recent data suggest that summer crop-producing regions could plant 3.75-million hectares, which is a 15% year-on-year increase. Moreover, winter crop-producing regions are set to realise a 15% year-on-year uptick in total output to 2.14-million tonnes.
On a positive note — despite growing concerns about SA’s political and policy uncertainty, confidence regarding capital investment improved in the fourth quarter of 2016 by nine index points quarter on quarter to 69 points. In part, this is due to positive prospects regarding agricultural conditions.
The confidence regarding SA’s economic growth improved from 30 index points to 34 points. This comes after the Reserve Bank revised the 2016 GDP forecast upwards from zero to 0.4%. The general agricultural conditions sub-index rose 11 points quarter on quarter to 66 points in the fourth quarter.
Overall, despite the positive improvements, political and policy uncertainty remain a concern that could discourage investment in the agricultural sector into the foreseeable future.
• Sihlobo (@WandileSihlobo) is head of economic and agribusiness research at the Agricultural Business Chamber
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