Overall, policy uncertainty remains a key stumbling block for the South African agriculture sector and could potentially discourage investments over the foreseeable future, Agbiz said on Monday.
This is despite an improvement in the third quarter Agbiz/IDC Agribusiness Confidence Index, which it finds encouraging.
Agbiz is, however, cautious not to draw conclusions about the outlook of the sector from this single reading, as the improvement was only in three of the ten sub-indices surveyed – the exception of economic growth prospects, agricultural conditions and employment sub-indices, which were the key drivers of this rebound.
After remaining below 50 index points for five consecutive quarters, the Agbiz/IDC Confidence Index recovered significantly by 13 index points to 60 in the third quarter of 2016.
This is the highest reading since the third quarter of 2014. An index point above 50 indicates expansion in the South African agribusiness activity. Therefore a 60 index point suggests that agribusinesses are holding an optimistic view regarding business conditions in the country.
“Looking ahead, we are not confident that the economic growth activity will continue to show improvement in the next quarter. Meanwhile, agricultural conditions could improve in the coming months,” said Agbiz.
“It is important to note that the prospects of La Niña occurrence have been revised down to 50% from the previous estimate of 65% by the Australian Bureau of Meteorology. This suggests that the country could experience a weak La Niña towards late spring through the summer season of the 2016/17 production year.”
Such a weather event could lead to normal to above normal rainfall, which might then replenish soil moisture.
Agbiz said it is worth noting that the respondents completed the questionnaire after the release of the second quarter gross domestic product (GDP) figures, which to some extent, might have influenced their view regarding SA’s economic growth prospects.
According to Agbiz, the 4 points drop to 75 in confidence regarding turnover sub-index suggests some agribusinesses are making losses, particularly the ones operating in grain producing areas. Lower production means lower storage and handling income for agribusiness.
The perceptions regarding employment in the agribusiness sector marginally improved, partly linked to the fact that the sector is approaching the production season, therefore activity.
Confidence regarding capital investment has dropped by 7 index points to 60 from the second quarter.
Agbiz suspects this decrease is linked to growing concerns about SA’s political and policy uncertainty.
Confidence in export volumes has dropped by 17 index points from the second quarter to 33, which is the lowest level since the first quarter of 2006.
Confidence regarding SA’s economic growth rebounded by 26 index points to 30 from the second quarter of 2016.
South African agribusinesses’ confidence regarding general agricultural conditions has improved by 33 index points to 55 from the previous quarter. This is largely supported by the expected weak La-Niña occurrence.
Moreover, winter crops are in good condition throughout the country, and this has contributed to the improved sentiment regarding agricultural conditions. In fact, South Africa’s 2016 wheat production is estimated at 1.7 million tonnes, up by 17% year-on-year.