The Agbiz/IDC Agribusiness Confidence Index Recovers Slightly in Q3 2024since the 2009 financial crisis. While this recovery is positive, the index remains below the neutral 50-point mark, suggesting that agribusinesses are still wary of the overall business climate. The earlier drop was largely due to uncertainty around the national elections, but the establishment of a Government of National Unity (GNU) has eased some concerns. This political shift has allowed agribusinesses to refocus on core issues affecting the industry.
However, the sector continues to face substantial challenges. South Africa’s agricultural industry is still reeling from the 2023-24 summer crop drought, deteriorating road infrastructure, and weak municipal services. Persistent animal diseases and heightened geopolitical tensions further add to the burden. Although there are ongoing efforts to build a stronger relationship with Transnet, improving port efficiency remains a critical issue. The ACI survey, conducted in early September, gathered responses from businesses operating across all agricultural subsectors.
Mixed Results Across Subindices
The ACI is composed of ten subindices, with six showing improvement in Q3. Among the key gains, the turnover subindex rose by 19 points to 50, buoyed by optimism in the winter crops and financial services sectors. However, red meat and summer grains businesses remain cautious due to the lingering effects of the drought and animal disease outbreaks. The net operating income subindex also rose, increasing by 12 points to 46, suggesting a more positive outlook for profitability in the industry.
In addition, the employment subindex saw an 8-point recovery to 64, reflecting optimism about job creation despite a 5% decline in agricultural employment in Q2. The renewed hope for job growth may be linked to expectations of better production conditions in the upcoming season. Investment sentiment also improved, with the capital investments subindex increasing by 11 points to 57. Businesses are likely anticipating a reduction in interest rates, which would ease access to capital and enable more investment.
On a broader economic scale, the general economic conditions subindex inched up by 4 points to 43. This slight improvement aligns with expectations for reduced load-shedding and more optimistic GDP forecasts. The general agricultural conditions subindex also increased by 4 points to 50, reflecting hopes for a favourable La Niña weather pattern in the 2024/25 summer season. This weather event is expected to bring much-needed rain, boosting production for summer crops and other agricultural activities.
Challenges Remain
Despite the overall improvement, several areas of concern persist. The volume of export sentiment dropped by 7 points to 14, signaling worries about lower export volumes resulting from the difficult summer season. Agricultural exports had already seen a slight decline in Q2, and further reductions are anticipated for Q3.
Financial pressure is mounting for some farmers, as evidenced by the debtor provision for bad debt, which increased by 19 points to 50. This reflects the growing financial strain on businesses affected by the drought and animal diseases. Financing costs also rose, with the subindex increasing by 23 points to 46, despite expectations of lower interest rates.
Outlook
The ACI for Q3 2024 presents a mixed picture, with some signs of improvement but significant challenges remaining. According to Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa (Agbiz), the long-term success of the agricultural sector depends on the government’s ability to resolve persistent infrastructure issues, improve municipal service delivery, and open new export markets. “Although we are moving towards a promising summer season, the long-term prospects for the sector depend on resolving these fundamental issues,” Sihlobo concluded.
John Hudson, Head of Agriculture at Nedbank Commercial Banking, echoed these sentiments, stating: “Following the positive outcome of the elections there has been a shift in momentum and this is reflected in the Agbiz/IDC Agribusiness Confidence Index improving by 10 points to 48. While this positive shift is welcomed, if we are to maintain an upward trend and move above the 50-point mark, there is a need for the improved sentiment to translate into tangible results. This means tackling and making progress on perennial challenges such as the weak local economy, poorly maintained infrastructure, port inefficiency, improved market access, poor municipal service delivery and animal disease challenges.”