My aim in this morning’s blog post is to discuss briefly the sentiment conditions in South Africa’s agriculture and agribusiness sectors. This follows the release of the third-quarter results of the Agbiz/IDC Agribusiness Confidence Index (ACI). For full disclosure, I lead the compilation of this Index.

Slight optimism

We ran the third-quarter survey in the first two weeks of September, covering all major agribusinesses operating in all agricultural subsectors – livestock, field crops and horticulture – across the country. This helps one to get a good feel of sentiments across the country, and not be swayed by one subsector or region in their assessment.

The ACI showed a rebound from 39 points in the second quarter to 51 points in the third quarter. A level just above the neutral 50-point mark implies that agribusinesses are only marginally optimistic about business conditions in South Africa.

I wasn’t surprised by these results as they corroborate various high-frequency data – from production (see here), agricultural machinery sales (see here) to agricultural trade (see here) – which show that most of South Africa’s agriculture and agribusiness sectors have not been severely affected by the ongoing COVID-19 crisis, as the sector was classified as essential and largely did not close down throughout the lockdown period.

With that said, the picture wasn’t broadly rosy from the survey responses we got. We noticed that the sentiment from business operating within the wine, floriculture and tobacco were not as positive as other subsectors. This was unsurprising as these particular subsectors were severely affected by the lockdown regulations, with sales prohibited for certain periods.

Broadly, the ACI is a composite index with about 10 sub-indices; namely, the turnover, net operating income, market share, employment, capital investment, export volumes, economic growth, general agricultural conditions, debtor provision for bad debt and financing cost.

These subindices mostly showed improvement from the second quarter except for employment, debtor provision for bad debt and financing cost. I wasn’t as surprised about the pessimism in employment even though we are in a boom agricultural year from a volumes perspective (and favourable commodity prices). The various health protocols, such as social distancing and limits on movement, that had to be adhered to, as an attempt to limit the spread of the coronavirus might have negatively influenced employment. This ha probably affected the most those who are typically involved in seasonal employment in agriculture.

But the decline in sentiment regarding the debtor provision for bad debt and financing cost subindices did surprise us given that the South African Reserve Bank has cumulatively cut interest rates by 300 basis points thus far this year. We think that the lenders may have become more risk-averse due to COVID-19-related uncertainty.

You can read more about the ACI and also access the headline data here.

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