Agricultural businesses profitability managed to turn from falling below 5% in 2006 to rise to an astronomical 24% in 2007, according to the latest PricewaterhouseCoopers Agribusiness Benchmarking Survey conducted among 21 agribusinesses. Total turnover rose 51% and 16% for large agribusinesses (with a turnover of over R330 million) and smaller agribusinesses, respectively.
Turnover for trade items rose by 27%, 43% for implements and 67% for grain transactions due to larger plantings. D ebtors increased by only 16% for large and 13% for smaller agribusinesses. The average time debts are outstanding decreased from 104 to 94 days. Kobie Bekker, PricewaterhouseCoopers’ national agribusiness leader, asserts that these results reveal agricultural businesses are using improved management techniques.
Results were achieved during a period of improved economic expectations due to low inflation and interest rates, based on the strengthening of the rand at the start of the year. Both these rates unfortunately began to tend upwards by the end of the survey period. Growth was stemmed by drought conditions, which especially prevailed in the northern grain areas, which led to a 13% drop in silo occupation – one of the greatest sources of agri income. Bekker was positive that cash flow in agriculture in general should improve due to low world grain stocks, as long as harvests and the most significant exchange rates remain normal and interest rates and fuel prices remain within certain limits. However, he pointed out that business confidence remains impaired by key local issues such as land reform and the production price index, which has hopefully reached its highest turning point. Corwyn Botha, chairperson of the Agricultural Business Chamber, warned that the success of agribusinesses depended on producers and that the current political environment wasn’t conducive to successful farming. “There isn’t enough grain, not because Grain told farmers to plant less, but because grain production became so unprofitable due to a lack of protection against imported products that farmers had no choice but to reduce plantings.” He added that the power crisis and high crime were stemming profitability. But despite his belief that government has failed, Botha said there was no perfect government in the world, and he therefore urged farmers and agribusinesses to adapt to remain sustainable and not to wait on government to intervene in the situation. – Glenneis Erasmus