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Cape Town - The confidence of South African agribusinesses regarding the country’s economic growth is at its lowest level since the second quarter of 2008.
The continued pessimistic view by agribusinesses in SA regarding business conditions in the country reflects in the latest Agbiz/IDC Agribusiness Confidence Index.
This is despite the index having improved slightly in the second quarter of 2016, increasing by four index points to 47. An index point below 50 indicates contraction in SA agribusiness activity.
The index remained below 50 points over the past five consecutive quarters, mainly due to the impact of the lingering drought. On a quarterly basis, however, the perceptions of agribusinesses improved in the majority of sub-indices, with the exception of export volumes and economic growth prospects sub-indices.
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Confidence in export volumes dropped by 25 index points to 50, which is at its lowest level since the third quarter of 2015. Agbiz says this is largely on the back of lower crop production. Summer crop production is set to reach 8.79 million square tonnes, down by 26% from last season, which was already 28% lower than in the 2014 season.
Trends picked up by the index include signs of hope that higher agricultural commodity prices might, to some extent, compensate for the losses in volumes in some enterprises. The weaker rand against the dollar also boosted confidence, particularly for the exporters. There has also been an improvement in confidence regarding net operating income, turnover and capital investment expectations.
There was also an improvement in the bad debt confidence sub-index, suggesting that some farmers might be in a better position to meet their debt obligations. At the same time some are more likely to struggle due to poor production in certain areas.
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Although sentiments around financing costs improved by 4 points to 47, this could be linked to interest rates having been held flat in the past few months, at 7%. However, Agbiz pointed out that the looming possible credit rating downgrade towards the end of the year remains a key risk in the financing of agriculture.
At the same time there are lingering concerns about political and policy uncertainty, particularly land reform proposals.
Even the perceptions about employment in the agribusiness sector improved marginally to 54. It is, however, still 7 index points lower than over the same period last year.
According to Agbiz, the annual decline could be linked to a drop in primary agricultural activity. South African farmers planted 22% less area of summer crops this year, which suggests that some enterprises within the agribusiness sector could also see a decline.
Confidence in general agricultural conditions have improved by 6 index points in the second quarter to 23. Prior to this period, there were fears that some areas might experience frost that could have further limited yields of late planted crops. However, conditions generally turned out to be relatively favourable.
According to the index report, agricultural conditions could improve in the coming months as a number of weather forecasters suggest there is a 65% chance of above normal rainfall, which might then replenish soil moisture.
"Policy uncertainty remains a key stumbling block and could potentially discourage investments in the sector," the report concludes.
"Most economic evidence does not favour agriculture as a future development path. But there is enough evidence to show that agriculture can play a role in modernising economy, he recently explained at National Treasury’s Public Economics Winter School.
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