Agribusiness confidence shows mild recovery in Q3 2024

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While the improvement in ACI to 48 points is encouraging, it is below the neutral 50-point mark, implying that South African agribusinesses remain somewhat concerned about business conditions.

The recent drought in the 2023-24 summer crop, poorly maintained road infrastructure, weak municipal service delivery, persistent animal disease challenges and heightened geopolitical tensions remain the primary concerns for the sector. Moreover, while organised agriculture continues to build a productive relationship with Transnet, there remains room for improved port efficiency.

This survey was conducted in the first week of September, covering businesses operating in all agricultural subsectors across South Africa.

Figure 1: Agbiz/IDC Agribusiness Confidence Index

Source: Agbiz Research, South African Weather Service (Shaded areas indicate periods of drought in South Africa.)

Discussion of the subindices

The ACI comprises ten subindices; six improved in Q3 2024, while the rest declined mildly. Here is the detailed view of the subindices.

• The turnover subindex confidence was up by 19 points from Q2 to 50. This optimism stemmed primarily from firms operating in the winter crops and financial services. Meanwhile, those in red meat and summer grains remain somewhat downbeat, reflecting the impact of the recent mid-summer drought and lingering animal diseases.

Others in the machinery supply industry maintained a roughly unchanged view from the previous quarter. In line with the turnover subindex, the net operating income subindex improved by 12 points from Q2 2024 to 46.

• The employment subindex recovered by 8 points from Q2 2024 to 64. This was surprising given that in Q2, agricultural employment was down 5% quarter-on-quarter to 896k as firms continued to experience financial pressures from the drought and animal diseases.

The optimism about jobs could be linked to expected better production conditions in the season ahead.

• Encouragingly, the capital investments subindex was up 11 points in Q3 to 57. The change in sentiment may be linked to an expected easing in the interest rates that may allow agricultural businesses and farmers to access more capital for investments at relatively better rates.

Still, high-frequency data, such as tractors and combine harvesters sales, continue to paint a bleak view of moderate sales. We will have to watch and see if this sentiment change results in a meaningful change in the investment pattern.

• The general economic conditions subindex recovered by 4 points to 43 in Q3 2024. This slight recovery in the mood about the economic conditions could be due to the expected effects of the reduction in load-shedding this year, and it is broadly consistent with improvements in various market analysts' GDP forecasts, who are positive about this year.

• The general agricultural conditions subindex lifted by 4 points to 50 in Q3 2024. This optimism mirrors the expectations of a La Niña in the 2024/25 summer season that starts in October. This weather event would bring much-needed rains for summer crops and other agricultural activities. Furthermore, the winter crop season, which is currently underway, is experiencing relatively favourable production conditions.

Declining sentiments

• The sub-index measuring the volume of export sentiment fell by 7 points to 14 in Q3 2024. This deterioration in sentiment signals the potential decline in export volumes this year because of the lower volumes resulting from a tough summer season drought.

South Africa's agricultural exports were already at $3,37bn in Q2, a 0,1% decline relative to the same period in 2023. The export figure for Q3 will likely show a further decline.

• The market share of the agribusiness subindex is down by 1 point to 64 in Q3. Admittedly, most respondents maintained a reasonably unchanged view on this point, and the current reading is a neutral 50-point mark, which makes it less worrying.

• The subindices of the debtor provision for bad debt and financing costs are interpreted differently from the abovementioned indices.

A decline is viewed as a favourable development, while an increase signals growing financial strain. In Q3 2024, the debtor provision for bad debt was up by 19 points to 50, which is an unfavourable development and shows prospects of harsh financial conditions in some farming businesses, and this could be linked to the recent drought and animal disease.

Moreover, the financing costs indices increased by 23 points from Q2 to 46, which is surprising in an environment of expected easing of interest rates.

The ACI results for Q3 2024 show some improvement in the sentiment in the sector. However, the fundamental challenges confronting the sector even before the elections remain the primary concern for the stakeholders.

Although we are moving towards a promising summer season, that may bring increased positive activity in the South African farming sector, the long-term growth prospects of the sector, which would also deliver jobs, hinge on the GNU's ability to resolve the challenges of the network industries, improve the functioning of the municipalities and open new export markets.