Agriculture business confidence wilts in first quarter of 2023 to lowest level in three years

13 Mar 2023

In yet another sign that the economy has probably fallen into a recession, the Agbiz/IDC Agribusiness Confidence Index (ACI) maintained its decline, falling by 5 points to 44 in the first quarter (Q1) of 2023.

The rains have generally been good this summer grain growing season, but business confidence in the agriculture sector is drying up.

Agricultural industry association Agbiz said on Monday that its confidence index continued to wilt in Q1 of this year in the face of intense power cuts, higher input costs, rising interest rates and collapsing local services, to name but just a few of the headwinds.

The ACI fell by 5 points to 44, its lowest reading since Q2 2020, when the economy was melting down under the weight of the initial lockdowns to contain the Covid-19 pandemic. This followed a four-point decline in Q4 of 2022 when the economy contracted by 1.3%.

And given the persistence and scale of the power cuts in the year to date and other confidence indices, this is the latest indicator to suggest that the economy is likely contracting again this quarter, which would mean it has tipped into recession.

“Notably, the first-quarter reading is below the neutral 50-point level, implying that agribusinesses are downbeat about business conditions,” Agbiz said.

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Six of the 10 subindices fell, including the employment index, which bodes ill on the critical jobs front. It tanked 12 points to 47.

The capital investments subindex fell 7 points to 59. That at least remains in positive territory, but rising interest rates and frequent power cuts are taking their toll on investor sentiment.

The general economic conditions subindex fell 14 points to 11, its lowest since Q2 2020.

“The bleak assessment of general economic conditions speaks to the current challenging business conditions brought by persistent energy shortages, inefficiencies in the network industries, inflation concerns and rising interest rates, amongst other challenges,” Agbiz said.

The subindices of the debtor provision for bad debt and financing costs are interpreted differently, with a decline seen as positive, while a rise signals mounting financial woes.

“The debtor provision for bad debt was up by two points to 36, which is unfavourable and signals growing worries about financial conditions in the sector,” Agbiz said.

“Meanwhile, the financing costs indices surprisingly fell marginally by one point to three. This marginal change confirms that there are still concerns about relatively higher interest rates.”

These sour readings go against the grain of some other data from the platteland.

The maize harvest this season, for example, is forecast to be up almost 1% over last year to a bumper 15.6 million tonnes. So, the gloom at least is not a major threat yet to food security in South Africa.

“Addressing the electricity crisis, and sector-focused issues such as biosecurity, opening up more export markets and dealing with inefficiencies in municipality service delivery are some of the key issues that will help improve sentiment and the fortunes of our agriculture and agribusiness sectors,” said Wandile Sihlobo, chief economist at Agbiz. DM/BM

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