While there is still reasonable business confidence in agriculture, political and economic uncertainty is placing the sector under pressure. Lindie Botha, Agricultural Business Chamber (ABC) manager for economic intelligence and finance, said a confidence index increase in comparison to 2007 is reflected in the first three quarters of 2008. She said confidence in the second quarter of 2008 was 8,6% higher than the same quarter of the previous year, whereas the current quarter is only 0,4% higher than the previous year’s third quarter.
Although there is positive sentiment reflected in the 2008 index, slow economic growth is wearing down on agribusiness. “After last year’s drought one would have expected a much more positive outlook considering high commodity prices and the excellent harvests obtained this year,” Botha explained. “However, it’s evident from the changes in the sub-indices that while agricultural conditions were an inhibitor of confidence in the sector last year, the slowdown of the economy is now taking its toll.”
Botha explained that high commodity prices, excellent yield and high demand for agricultural and food products internationally and locally did, however, reflect positively on agribusiness books. However, she added, even though business is good and general agricultural conditions are favouring the sector, the macro environment seems to draw confidence down. The slowdown of the economy is impacting negatively on the sector’s confidence and it seems to expect fewer exports compared to last year this time.
The cost of capital also appears to inhibit confidence levels – financing costs are slightly up compared to last year, when they had already experienced a hike in interest rates. But overall confidence is high and in this environment it’s feasible for agribusiness to improve on efficiency. Botha warned that challenges will lie with the sector’s ability to manage the less favourable macroeconomic environment. – Rudi Massyn
