Agribusiness Confidence Index recovers in third quarter as businesses pin their hopes on GNU

16 Sep 2024

The Agbiz/IDC Agribusiness Confidence Index (ACI) recovered in the third quarter (Q3) from 15-year lows as businesses hope the Government of National Unity (GNU) can sow the seeds of economic reform. But it remains mired below the neutral 50 mark.

The Agribusiness Confidence Index rebounded 10 points in Q3 to 48, but this was off a very low base. The 38-point read in Q2 was the lowest since 2009 during the throes of the global financial crisis. And as it remains stuck below the neutral 50 mark — the range is zero to 100 — the index signals that businesses in the sector remain generally downbeat.

“The extreme pessimism in the previous survey was partly due to election-related uncertainty,” said Wandile Sihlobo, Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz).

“The formation of the Government of National Unity (GNU) appears to have eased that concern. The focus is back on fundamental agricultural matters. While the improvement in the Agribusiness Confidence Index to 48 points is encouraging, it is below the neutral 50-point mark.”

Sihlobo said the main concerns of the sector that were weighing on confidence included the scorching El Niño-triggered drought that withered summer crop yields, animal disease outbreaks, poor service delivery and geopolitical tensions.

The survey was conducted in the first week of September and covered all of the agricultural sub-sectors operating in South Africa.

Green shoots

Among the green shoots in the reading was the employment subindex, which advanced 8 points to 64 — a surprising move given a 5% quarter-on-quarter decline in agricultural employment in Q2.

“The optimism about jobs could be linked to expected better production conditions in the season ahead,” Sihlobo said. As the sector is labour intensive in an economy with sky-high rates of unemployment, this is clearly a positive sign.

The capital investments subindex meanwhile sprouted 11 points higher in a sign that agribusinesses are preparing to spend money to make money. This rise in sentiment comes against the backdrop of widespread expectations that the Monetary Policy Committee of the South African Reserve Bank will begin a rate-cutting cycle when its next meeting concludes this Thursday.

“Still, high-frequency data, such as tractors and combine harvester 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,” Sihlobo cautioned.

The subindex for general economic conditions only increased four points to 43, strongly suggesting that the outlook from the fields regarding the overall trajectory of the economy remains pessimistic.

The one measuring debtor provision for bad debt — which moves against the grain, with a decrease seen as favourable and an increase signalling a deterioration in sentiment — spiked 19 points higher to 50. And the financing costs subindex, which follows the same pattern, leapt 23 points to 46.

This all signals tough financial conditions for at least some businesses in the sector.

The bottom line is that while agricultural sentiment overall is on the rise in South Africa, the mood remains far from buoyant. DM

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Green shoots