Agribusiness Confidence
Agbiz/IDC Agribusiness Confidence Index rebounds in Q3,2023
Published: 19/09/2023
After remaining below the 50-point mark for three consecutive quarters, the Agbiz/IDC Agribusiness Confidence Index (ACI) rebounded by 6 points from Q2 2023 to 50 in Q3 2023. This improvement implies that agribusinesses are cautiously adapting to the challenging operating business conditions in the country emanating from the numerous long-standing challenges such as deteriorating infrastructure, failing municipalities, intensified geopolitical tension, and persistent episodes of load-shedding. The readings above the neutral 50-point mark imply that agribusinesses are optimistic about business conditions in South Africa. This survey was conducted between the last week of August and the first week of September, covering businesses operating in all agricultural subsectors across South Africa.
After remaining below the 50-point mark for three consecutive quarters, the Agbiz/IDC Agribusiness Confidence Index (ACI) rebounded by 6 points from Q2 2023 to 50 in Q3 2023. This improvement implies that agribusinesses are cautiously adapting to the challenging operating business conditions in the country emanating from the numerous long-standing challenges such as deteriorating infrastructure, failing municipalities, intensified geopolitical tension, and persistent episodes of load-shedding. The readings above the neutral 50-point mark imply that agribusinesses are optimistic about business conditions in South Africa. This survey was conducted between the last week of August and the first week of September, covering businesses operating in all agricultural subsectors across South Africa.
Discussion of the subindices
The ACI comprises ten subindices, and seven improved in Q3
2023. This excludes the debtor provision for bad debt and financing
costs subindices, which are interpreted differently from other subindices. Here
is the detailed view of the subindices.
·
The turnover and
the net operating income subindices are up by 9 and 4 points from Q2 to
74 and 59 in Q3 2023, respectively. Firms in the summer and winter grains,
financial services and livestock mainly underpinned this optimism. The
sentiment mostly mirrors the benefits of an ample agricultural harvest in the
2022/23 season.
·
The market share of the
agribusiness subindex is up 2 points from Q2 to 59. The respondents that mainly
underscored this improvement were primarily in the summer and winter grains,
while other subsectors maintained an unchanged view from the last quarter.
·
The employment
subindex lifted by 11 points from Q2 to 59. This optimism is unsurprising as
the sector recently registered an improvement in jobs. For example, about 894
000 people were employed in primary agriculture in the second quarter, up 1%
q/q and 2% y/y. This is the highest farm employment level since the last
quarter of 2016 and is well above the long-term agricultural employment of 780
000.
·
Surprisingly, the capital
investments subindex increased by 19 points from Q2 2023 to 73. We suspect
the sharp improvement in sentiment could be linked mainly to investment in
renewables to cope with the intensified load-shedding. The data for other
agricultural equipment, such as tractors and harvesters sales, has declined
slightly in recent months.
·
The general
economic conditions subindex jumped by 16 points to 26. The recent
positive growth figures for the year's second quarter perhaps influenced the
sentiment.
·
The general
agricultural conditions subindex rose 8 points to 56 in Q3 2023. Favourable
production conditions in the winter grains regions of the country mainly
supported this increase. Still, there are growing concerns about the upcoming
2023/24 summer crop season due to the expected El Niño, although we suspect its
impact will likely be mild.
·
Unlike other positive subindices, the sub-index measuring the volume of export
sentiment declined notably by 17 points to 43 in Q3
2023. This deterioration in sentiment signals the expected decline in
export volumes this year from the robust levels of 2022, although the harvest
is reasonably decent in all major crops and fruits. Ongoing worries about
underperforming logistics could also be a cause for this pessimism.
·
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 uptick signals growing financial strain. In Q3 2023, the debtor provision
for bad debt was up by 8 points to 41, which is unfavourable and
signals a possible pressure in financing as businesses are possibly increasing borrowing
to finance the alternative energy sources. Meanwhile, the financing costs
indices fell by 1 point to 6, signalling that companies likely believe the
interest rate hike cycle has ended.
Concluding remarks
The Agbiz/IDC ACI's Q3 results indicate a slightly upbeat
mood after the past three-quarters of deterioration in sentiment. "Still,
the long-standing challenges of weakening municipalities, deteriorating roads,
rising crime, inefficient logistics, and persistent load-shedding remain the
major challenges that could undermine the sector's long-term growth. These are
aspects that both the government and private sector should collaboratively work
to resolve to attract investments," says Wandile Sihlobo, chief economist
of the Agricultural Business Chamber of SA (Agbiz).
ISSUED BY:
Wandile Sihlobo
Chief Economist, Agricultural Business Chamber of South Africa (Agbiz)
E-mail: wandile@agbiz.co.za