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The Agbiz/IDC Agribusiness Confidence Index (ACI) remained depressed in Q2 2024, reaching 38 points from 40 in the previous quarter. This is the lowest level since Q3 2009, which was the global financial crisis, and implies that agribusinesses remain downbeat about business conditions in the country.
The mid-summer El Niño induced drought’s impact on summer grains and oilseed production is one of the major factors that weighed on the sentiment. The drought coincided with the long-standing challenges of inadequate road infrastructure and municipal service delivery. The lingering animal disease challenges and heightened geopolitical tensions are also the primary concerns for the sector. Moreover, while the farming community recognises the improvements in Transnet’s operations, they highlight the need for continuous work to address the inefficiencies of the ports and rail network.
The uncertainty about the formation of the government at the time of the survey may have added to the downbeat mood amongst the agribusinesses. This survey was conducted between 10 and 19 June, covering businesses operating in all agricultural subsectors across South Africa.
Read more about the change in agriculture here.
Discussion of the subindices
The ACI comprises ten subindices; five declined in Q2 2024, while the rest showed mild improvement. Here is the detailed view of the subindices.
Turnover subindex
The turnover subindex was down by 22 points from Q1 2024 to 31, the lowest level since Q2 2020. Similarly to the previous month, the deterioration in sentiment reflects the expectations of poor summer grains and oilseed harvest in an environment where the input costs remain relatively elevated compared to pre-COVID-19 levels. This illustrates not only the pressures in the summer crop regions but also the respondents in the livestock industry, who are also challenged by the relatively higher input costs. In the same line as the turnover subindex, the net operating income subindex fell by 13 points from Q1 2024 to 35, reflecting the impact of the mid-summer drought on the farming business’ income.
Employment subindex
The employment subindex fell by 12 points from Q1 2024 to 38. This was a surprise given while the production conditions have been tough for some commodities, the employment conditions held up in the first quarter of the year, supported by robust horticulture production and resilience in some regions. For example, the data released by Statistics South Africa in May showed that employment in primary agriculture lifted by 6% year-on-year to 941 000 in the first quarter of 2024. This change in sentiment suggests that the drought’s impact on jobs may perhaps start to reflect on Q2 jobs data.
Capital investments subindex
The capital investments subindex was down by four points from Q1 2024 to 46. This is unsurprising as the tractors and combine harvesters’ sales have generally declined since the start of the year.
Read more about live export trade here.
Volume of export
The sub-index measuring the volume of export sentiment fell by 14 points to 21 in Q2 2024. This deterioration in sentiment signals the potential decline in export volumes this year from a record export of US$13,2 billion in 2023. Admittedly, the Q1 2024 agricultural exports were robust, up 6% year-on-year on the back of strong horticulture, wine, and livestock products exports. However, the year’s export activity may be weak compared to the previous year, mirroring what we see in the production volumes of some commodities.
Mild improvements
The market share of the agribusiness subindex is up six points from Q1 2024 to 65 in Q2. Except for the respondents in the inputs, winter crops and some financial services businesses, which showed an improvement, most held a generally unchanged view.
The general economic conditions subindex recovered by nine points to 38 in Q2 2024, still far from the neutral point mark of 50. This slight recovery in the mood about the economic conditions could be linked with expectations of a reduction in load-shedding this year, and it is broadly consistent with improvements in various market analysts’ gross domestic product forecasts.
After a sharp fall at the start of the year, the general agricultural conditions subindex recovered by 28 points to 46 in Q2 2024. These sentiment results mirror an end of the intense El Niño cycle and a transition to the expected La Niña later this year and into the 2024/25 summer season. This would bring much-needed rain for summer crops. Moreover, the winter crop season, which is currently underway, is experiencing favourable production conditions, and the respondents highlighted this view.
Debtor provision
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 increase signals growing financial strain. In Q2 2024, the debtor provision for bad debt was up by three points to 31, which is an unfavourable development and shows prospects of harsh financial conditions in some farming businesses, possibly those in summer grains. Meanwhile, the financing costs indices declined by four points to 23, signalling that agricultural firms perhaps believe the interest rate would soon start to decline. This is important in a sector with just over R205 billion in farm debt. – Agbiz
