Confidence might be down, but agribusinesses are not out

Estimated reading time: 4 minutes

While the Agbiz/Industrial Development Corporation of South Africa (IDC) Agribusiness Confidence Index (ACI) is at its lowest point since 2020, Francois Strydom, chairperson of Agbiz, said that this does not mean that investment in the sector will decline.

“The ACI is a tool that indicates the feelings of business leaders concerning the sector’s outlook in coming months. Any smart businessperson will not let short-term outlooks determine his or her long-term investment strategy,” Strydom said.

The ACI for the fourth quarter of 2023 was released on 11 December indicating a deterioration by ten points to 40 points for this period. This is the lowest level the ACI has reached since Q2 2020, at the height of the Covid-19 pandemic’s hard lockdown restrictions. The latest survey was conducted between the last week of November and the first week of December, covering businesses operating in all agricultural subsectors across South Africa.

“This pessimism emanates from the numerous challenges facing the sector such as intensified delays and inefficiencies at the ports, deteriorating rail and road infrastructure, worsening municipal service delivery, increased geopolitical uncertainty and persistent episodes of load shedding,” said Wandile Sihlobo, chief economist at Agbiz. He added that it was important to note that the reading was well below the neutral 50-point mark, indicating that South Africa’s agribusiness leaders were downbeat about business conditions in the country.

Read more about the ACI Q2 report.

Eye on the strategy

Strydom said it was important to keep one’s eye on the ball at times like these. “One should never tie your boat at the lowest point, because when the tide comes in you will be left behind. In the same way, if you sell stock during tough times, you will realise the loss. It is better to rather keep stock when it reaches rock bottom and sell when it tops out.”

He also said that tough times brought many opportunities because there could potentially be brilliant companies that struggle with cash flow or some other aspect of their business, that could easily be rectified with smart investments. Those are the types of opportunities that investors should look out for. “If a company struggles, but they have a strong management team you know that now is probably a good time to invest in that company.”

Lowered income expectations

According to Sihlobo, the ACI indicated that leaders felt the turnover and the net operating income will probably be lower going forward. “This downbeat mood mirrors the prevailing concern that while El Niño could be mild, the agricultural output will likely be lower than the previous bumper season, weighing on incomes.”

Concerning employment, the ACI indicated that the subindex fell by 12 points from Q3 to 47. “This is unsurprising in an environment with concerns about the sector’s outlook,” Sihlobo said. “Still, the sentiment shows a stark disconnect from the recent robust jobs data in the sector. For example, in Q3 2023, approximately 956 000 people were employed in primary agriculture, up 10% year on year.”

The capital investments subindex dropped by 30 points from Q3 2023 to 43. “This reflects the declining spending pattern on agricultural equipment and machinery we have observed over the past few months,” Sihlobo said.

Following a sharp decline in Q3 2023, the sub-index measuring the volume of export sentiment fell further by a point to 42 Q4. Sihlobo said 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. “The ongoing worries about underperforming ports also added to the prevailing pessimism,” Sihlobo said.

“While South Africa’s agricultural sector had a generally good season this year, with gains illustrated by robust employment conditions and export volumes in the first three quarters, the outlook is worrying. The Agbiz/IDC ACI’s Q4 results indicate that more work is needed to improve the operational conditions in the farming and agribusiness sector.

“The key constraining issues to South Africa’s agricultural growth potential include the weakening municipalities, deteriorating roads, rising crime, inefficient logistics, and persistent load shedding,” said Sihlobo.  – Susan Marais, Plaas Media

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