CAPE TOWN – The agricultural sector is set to underperform in the 2019/2020 season despite the prospects of predicted adequate rainfall, data shows.
The Agricultural Business Council (Agbiz) confidence index released yesterday rose to 46 in the third quarter, after easing to 44 in the second quarter, still at a level below the neutral 50-point mark, which implies that agribusinesses have a bleak view of business conditions in South Africa.
The Agbiz composite index comprises 10 sub indices, most of which are still generally subdued compared to the long-term average levels since its inception in 2001. Four of the 10 sub indices that make up the composite index underpinned the slight improvement in sentiment in the third quarter. These positive sub-indices were general agricultural conditions, volume of exports, market share of agribusiness and employment sub-indices.
Wandile Sihlobo, the chief economist at Agbiz, said: “It signals a potential mild uptick in SA agriculture gross domestic product in the third quarter, but we generally expect SA agribusiness to under perform in 2019. We see a 2 percent year-on-year contraction in SA agricultural fortunes this year.”
He noted that although the uptick in confidence was always a welcome development, it was important to be mindful that the Agbiz/IDC Agribusiness Index had been hovering at levels below the 50-point mark for the past five quarters.
“We worry that remaining at these levels for a prolonged period could lead to declining investment in the sector, albeit this is not the case at the present moment,” he added.
Sihlobo said aside from the weather conditions in the Western Cape and Northern Cape, nothing had fundamentally changed at farm level over the two reporting quarters.
“Admittedly, some of the factors that have led to subdued confidence in South Africa’s farming sector are outside of policymakers’ hands, notably the drought. But there are also some factors that are within the policymakers reach, such as clarity on land reform policy and water rights, increased investments on strengthening biosecurity and shipping ports infrastructure. These matters should be prioritised in order to see an uptick in sentiments and, thereafter ,investment and agricultural economic fortunes,” Sihlobo said.
Greg Cadman, the chairperson of the South African Agricultural Machinery Association, said: “Despite some negative sentiments in the market, farmers are cautiously optimistic as preparations for the forthcoming summer cropping season have now begun in earnest. Although grain prices are better than they were last year, many farmers are currently holding onto their crops. This, together with some farmers facing adverse cash flow situations probably means that the market for agricultural machinery will be restrained for the rest of the year.”
Additional reporting by Banele Ginindza.