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If you look beyond the few negative factors – such as land reform and other political issues, crime against farmers and unexpected natural disasters – prospects for South Africa’s farming industry look better than they have for years. Agribusinesses will undoubtedly share in that.
Not that food producers fared badly between March 2010 and end-February this year. For example, the share price of a listed company – such as Astral – increased by 30% and Afgri’s by around 19%. And those were in conditions of low food prices that had scarcely increased in two years and, in some cases, had even fallen.
Perhaps we should look at the issue dispassionately: two unrelated surveys on the performances of farmers and businesses over the past year, plus the latest confidence index for agriculture, all indicate a considerably better period for the industry.
* The latest agribusiness confidence index for the Agricultural Business Chamber (ABC), announced last week, points to a large increase in agricultural confidence among agricultural and related businesses (see graph). The index figure of 62 for first quarter 2011 wasn’t only 13% higher than last quarter 2010 (55) but also the most positive it’s been in three years.
Higher commodity prices, increased overseas demand for agricultural products, a more lively economy after the recession and a huge improvement in general agricultural conditions are all positive factors. Even export expectations are slightly better. A “large increase” is indicated for agribusinesses’ turnover and profit expectations.
* PwC’s authoritative annual performance survey for agribusinesses (also announced recently) indicates steady performances despite last year’s depressed agricultural prices and poorer turnover. However, Kobie Bekker, national head for agriculture at PwC, mentions negative trends, such as a growing debtors book, but says the majority of businesses expect the industry to return sound growth from the second half onwards. “There are also pleasing indications that more alliances and joint ventures will be formed to tackle new projects, which will add value to producers’ products,” Bekker says.
The survey also shows net profit before interest and tax for SA’s large agribusinesses fell by 18% last year against the previous year. However, that was from a very high base, because 2009’s net profit was 58% higher than that in 2008.
However, small agribusinesses were a surprise, in that their net profit before interest and tax rose by 9% compared with the previous year. But the net profit percentage of the larger agricultural groups remains high at 6,08% in contrast to the 4,43% of smaller ones.
* The net income of SA’s farmers fell marginally between July 2009 and end-June 2010. However, that was acceptably small considering the circumstances. The Department of Agriculture’s Directorate of Agricultural Statistics says gross farm income was 0,6% lower at R128,8bn, while input costs increased on average by 6,8%.
Investment by farmers is also continuing. The value of capital assets in agriculture was an estimated R223,4bn at 30 June last year, which was 8,2% higher than the previous year’s R206,6bn. Farmers themselves have therefore not lost confidence in the industry.
The international Food and Agricultural Organisation’s food price index shows prices rose by an average 56% between 2006 and 2008. The world recession and other factors subsequently dampened that, but prices are again taking off. Food prices in SA have so far not increased nearly as much as elsewhere, but double-digit increases in the next year or two are inevitable. That’s bad news for consumers. But the same can’t be said for primary and secondary agricultural industries. Nor for investors.
Not that food producers fared badly between March 2010 and end-February this year. For example, the share price of a listed company – such as Astral – increased by 30% and Afgri’s by around 19%. And those were in conditions of low food prices that had scarcely increased in two years and, in some cases, had even fallen.
Perhaps we should look at the issue dispassionately: two unrelated surveys on the performances of farmers and businesses over the past year, plus the latest confidence index for agriculture, all indicate a considerably better period for the industry.
* The latest agribusiness confidence index for the Agricultural Business Chamber (ABC), announced last week, points to a large increase in agricultural confidence among agricultural and related businesses (see graph). The index figure of 62 for first quarter 2011 wasn’t only 13% higher than last quarter 2010 (55) but also the most positive it’s been in three years.
Higher commodity prices, increased overseas demand for agricultural products, a more lively economy after the recession and a huge improvement in general agricultural conditions are all positive factors. Even export expectations are slightly better. A “large increase” is indicated for agribusinesses’ turnover and profit expectations.
* PwC’s authoritative annual performance survey for agribusinesses (also announced recently) indicates steady performances despite last year’s depressed agricultural prices and poorer turnover. However, Kobie Bekker, national head for agriculture at PwC, mentions negative trends, such as a growing debtors book, but says the majority of businesses expect the industry to return sound growth from the second half onwards. “There are also pleasing indications that more alliances and joint ventures will be formed to tackle new projects, which will add value to producers’ products,” Bekker says.
The survey also shows net profit before interest and tax for SA’s large agribusinesses fell by 18% last year against the previous year. However, that was from a very high base, because 2009’s net profit was 58% higher than that in 2008.
However, small agribusinesses were a surprise, in that their net profit before interest and tax rose by 9% compared with the previous year. But the net profit percentage of the larger agricultural groups remains high at 6,08% in contrast to the 4,43% of smaller ones.
* The net income of SA’s farmers fell marginally between July 2009 and end-June 2010. However, that was acceptably small considering the circumstances. The Department of Agriculture’s Directorate of Agricultural Statistics says gross farm income was 0,6% lower at R128,8bn, while input costs increased on average by 6,8%.
Investment by farmers is also continuing. The value of capital assets in agriculture was an estimated R223,4bn at 30 June last year, which was 8,2% higher than the previous year’s R206,6bn. Farmers themselves have therefore not lost confidence in the industry.
The international Food and Agricultural Organisation’s food price index shows prices rose by an average 56% between 2006 and 2008. The world recession and other factors subsequently dampened that, but prices are again taking off. Food prices in SA have so far not increased nearly as much as elsewhere, but double-digit increases in the next year or two are inevitable. That’s bad news for consumers. But the same can’t be said for primary and secondary agricultural industries. Nor for investors.
