Confidence in agriculture ticks up, but land expropriation yet to weigh in

12th March 2018 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Confidence in agriculture ticks up, but land expropriation yet to weigh in

Photo by: Creamer Media

The Agbiz/IDC Agribusiness Confidence Index for the first quarter painted an encouraging picture of the South African agricultural sector, as it improved by nine points to 58, after declining to levels below the 50-point mark in the last quarter of 2017.

The survey, which was conducted between February 21 and March 1, was somewhat reflective of broader positive sentiment following recent political developments, tail-end benefits of robust agricultural output in the 2016/17 production, as well as favourable weather conditions for the 2017/18 summer crop growing areas of the country.

However, about two-thirds of the responses were received before the National Assembly adopted the motion on land expropriation without compensation.

“The debates around the contentious issue of land reform, particularly expropriation without compensation, remain a key risk that could potentially undermine investment in the sector. It remains to be seen if this development will have an impact on agribusiness confidence,” said Agbiz economist Wandile Sihlobo.

Among the ten subindices making up the Agbiz/IDC Agribusiness Confidence Index, the quarterly uptick was broad-based, with the exception of the volume of exports and debtor provision for bad debt subindices.

Driving the sentiment in these particular subindices was mainly the unfavourable weather conditions in the Western Cape, as well as weak global demand for maize exports.

Meanwhile, the turnover, net operating income, market share, employment, capital investment, economic growth, general agricultural conditions and financing costs subindices were the key drivers of the uptick from the previous quarter.

Confidence regarding the turnover subindex improved by ten index points in the last quarter of 2017 to 77. This was the highest level since the second quarter of 2016. The optimism was mainly underpinned by large supplies or inventories, particularly for agribusinesses operating in the summer grains and oilseed growing areas.

In a similar trend to that of the turnover subindex, confidence in net operating income subindex marginally declined by one index point to 68 in the first quarter of the year.

The perception in the market share of the business subindex improved by six index points from the previous quarter to 68. These results also partially reflected the potential benefits of the 2017 summer rainfall, particularly in summer grain and oilseed operating businesses. 

Confidence regarding employment in the agricultural sector improved from 58 in the last quarter of 2017 to 75 points. This reflected an improvement in expectation of seasonal employment, owing to increased activity in summer crop growing areas of the country, as well as harvest process in some horticulture growing areas.

The sector already saw a 5% quarter-on-quarter increase in employment in the last quarter of 2017 to reach 849 000 jobs.

After deteriorating to 44 points in the last quarter of 2017, the capital investments confidence subindex improved by 23 points to 67 in the first quarter.

This optimism was somewhat linked to broader positive political sentiment in the country.

The perception measured by the export volumes subindex deteriorated further by seven index points in the first quarter of 2018 to 55. This was largely the result of lower demand for maize in South Africa’s traditional export markets, as well as an expected decline in horticultural products output.

The perception regarding economic conditions improved by 45 points quarter-on-quarter to 68. This was the highest reading since the second quarter of 2011 and in line with positive domestic and global economic growth expectations.

The general agricultural conditions subindex increased by nine index points in the first quarter of this year to 37. This was largely underpinned by favourable weather conditions in summer crop growing areas of the country.   

The financing costs subindex fell by 14 index points in the first quarter of this year to 30. “To some extent, this is in with expectations that the South African Reserve Bank could cut its repurchase rate in the near term,” the report said.