Agriculture sector optimism moves to highest level since late 2014
CONFIDENCE in the recession-struck agricultural sector has jumped to its highest level in eight quarters, suggesting an expansion in South African agribusiness activity, an index showed on Monday.
The Agbiz/IDC confidence index recovered 13 points to 60 in the third quarter of this year, after remaining below 50 index points for five consecutive quarters, according to Agbiz.
This is the highest reading since the third quarter of 2014. The agricultural sector has been in decline for six consecutive quarters.
Wandile Sihlobo, Agbiz head of agribusiness research said: "This suggests that agribusinesses are holding an optimistic view regarding business conditions in the country."
Optimism among survey respondents also ran high over employment in the sector and on this score the index improved nine points from the previous quarter to 63. This was partly linked to the approaching production season and the chances that activity may increase, leading to seasonal job opportunities.
The confidence is in part due to a better-than-expected 3.3% quarter-on-quarter seasonally adjusted annualised improvement in the overall economy during the second quarter, from a 1.2% contraction during the first three months.
Earlier in September, Statistics SA showed that of 10 industries, only the agriculture, forestry and fishing sector and the electricity, gas and water industry had contracted during the second quarter of the year.
The agricultural sector is also anticipating favourable winter crop conditions in the Western Cape and a 50% chance of a La Nina occurrence, which would bring above normal rainfall relief to drought conditions.
But the positive perceptions are not broad-based. Seven out of the 10 subindices of the survey reflected negative views.
Confidence in capital investment dropped seven index points to 60, possibly over growing concerns about SA’s political and policy uncertainty, according to Sihlobo.
Survey participants include at least 20 agribusiness decision-makers in 10 of the most important aspects influencing business in the agricultural sector.
Concerns over provision for bad debts saw that subindex slide 11 points to 32. But higher commodity prices had, to some extent, compensated for lower production volumes in some areas, "thus improving the farmers’ ability to meet their obligations", Sihlobo said.
Participant were also less confident about meeting export volumes as summer crop production was expected to be at least 25% down from last season and turnover expectations were lower. Reduced production means lower storage and handling income for agribusiness.
Although confidence in South Africa’s economic growth rebounded 26 index points to 30 because of the leap in real GDP figures in the second quarter, "we remain cautious that the respondents’ views could easily change in the coming quarter", Sihlobo said.