Like many other sectors of the economy, agriculture has shown signs of improved optimism since the government of national unity (GNU) got off the ground, which has fuelled confidence about the path forward.
The Agbiz/IDC agribusiness confidence index, a sentiment indicator of business conditions in the sector, has risen from its low of the second quarter, increasing by 10 points to 48 in the third quarter. While the index remains below the neutral 50-point mark, the 10-point jump is encouraging, signalling that things are moving in the right direction.
A sustained lift in sentiment matters, especially over the long run, for fixed investment in the agriculture and agribusiness sectors. The index also serves as a leading indicator of agricultural growth prospects over time. We can thus expect slightly better farming output data for the third quarter of 2024.
Several factors underpin the improvement in sentiment. One of them is the better electricity supply. SA’s horticultural production — fruit, vegetables and floriculture — is under irrigation, requiring a reliable energy supply.
Roughly a third of field crops are produced under irrigation, and this too has benefited from improved energy supplies. The livestock, poultry and dairy industries are major energy users in the sector, as are aquaculture industries such as abalone farms, which need electricity to pump fresh water.
There has been a significant increase in renewable and other alternative energy sources, but the broad stability of Eskom’s national energy supply in recent months is the main factor.
Moreover, at least for field crops and horticulture, the start of the 2024/25 summer season has seen better-priced input costs compared with the past season. For example, in rand terms most fertiliser product prices were about 10% lower year on year in September. Since fertiliser accounts for about a third of grain farmers’ input costs in SA, such a price decline significantly improves farmers’ finances.
Also worth noting is that in rand terms herbicide prices were down about 20% year on year in August, while insecticides were about 15% cheaper. Since herbicides and insecticides comprise about 10% of grain farmers’ input costs, these price changes are also significant. Both the stronger domestic currency and lower dollar prices on the international market have contributed to the rand price declines.
While I highlight the proportion of these products in the grain farmers’ costs, they also make up a considerable share of the production costs in the horticulture subsector. The recent easing of fuel prices at a time of high usage during planting is another positive factor.
The prospects of La Niña-induced rainfall in the summer season is an additional factor raising optimism about the agricultural outlook in SA. The weather arguably matters more than other factors when it comes to the sector’s performance. The 2023/24 midsummer drought led to a projected 23% decline in the country’s summer grain and oilseed production to 15.45-million tonnes.
This is also one of the factors behind the contraction in agricultural gross value added in the second quarter of 2024 (in addition to animal disease challenges). Therefore, the possibility of improvement in rainfall occurrence has raised hopes that a recovery in the sector’s performance is in sight.
Improving agricultural production conditions would bode well for job creation in the sector and for the consumer food price inflation outlook going into 2025.
While I highlight these reasons for optimism in the agricultural sector, I remain of the firm belief that SA’s long-term growth prospects, which will determine job creation, hinge on the GNU’s ability to resolve the challenges facing network industries, improve the functioning of municipalities, address animal diseases and open new export markets in a world that is increasingly fragmented.
• Sihlobo is chief economist at the Agricultural Business Chamber of SA and an extraordinary senior lecturer in Stellenbosch University’s department of agricultural economics.
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