Agribusiness confidence drops but still optimistic

While overall confidence within South Africa’s agribusiness sector dropped two index points in the third quarter (Q3) of 2017, the sector remained optimistic about business conditions in the country.

Agribusiness confidence drops but still optimistic
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This was according to the Agbiz/IDC Agribusiness Confidence Index (ACI) that reflects the perceptions of at least 20 agribusiness decision-makers in the country on 10 sub-indices.

Head of agribusiness research at Agbiz, Wandile Sihlobo, said that the Q3 results showed that there had been a drop of two index points to 54 following the one index point drop in the Q2 results.

An overall ACI reading of above 50 indicated expansion in SA agribusiness activity. The last time this reading was 50 or below was in the Q2 of 2016.

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“Among the 10 sub-indices making up the [ACI], the quarterly decline [for Q3 2017] was broad-based, with the exception of turnover and capital investment. Although there are a number of factors driving sentiment of the other sub-indices, the unfavourable weather conditions in the Western Cape and relatively lower global demand for maize exports were the key drivers of the decline in sentiment in the third quarter of this year,” said Sihlobo.

An overview of the Q3 2017 ACI report’s sub-indices showed that confidence regarding net operating income declined five index points to 63. This, in part, showed an expectation of lower profitability relative to previous quarters, particularly in SA’s horticultural and wine industries.

The perception regarding export volumes dropped eight points to 50. Sihlobo said that this latest figure was due largely to lower demand for maize in SA’s traditional export markets, together with lingering concerns regarding dryness in some of SA’s horticultural production areas.

“In a similar trend with the Export Volumes sub-index, confidence in the Market Share of the Business sub-index declined by 12 index points to 57 points in the third quarter,” he added.

While confidence regarding employment in SA’s agricultural sector remained unchanged at 59 index points, weather remained a key deciding factor regarding the outlook for the country’s agricultural jobs market.

The Economic Conditions sub-index dropped nine points to 40, reflecting “relatively downbeat expectations for overall economic growth performance this year”.

Sihlobo said that after good summer rainfall in 2017, which led to record maize and soya bean harvests, confidence regarding the General Agricultural Conditions sub-index declined 17 points to 48. This was also primarily due to the current dry conditions in the Western Cape’s winter grains, horticultural, and wine sectors.

He added that the results of the ACI Q3 2017 suggested that SA agribusinesses’ provision for bad debt may have increased in line with the unfavourable weather conditions in the country’s winter grains producing areas. This was reflected in the five points increase to 43 in the Debtor Provision for Bad Debt sub-index.

In spite of the recent cut in SA’s interest rate, the Financing Costs sub-index increased 17 points to 50. Sihlobo said that this was, to some extent, due to expectations of higher costs of servicing debt in anticipation of more credit rating downgrades.