The Agricultural Business Chamber (Agbiz)/Industrial Development Corporation (IDC) Agribusiness Confidence Index (ACI) increased by ten points quarter-on-quarter to 58 in the fourth quarter of this year.

This is the second consecutive improvement and places the ACI at its highest level since the second quarter of 2022.

Agbiz says this level of the ACI implies that South African agribusinesses remain generally optimistic about business conditions in the country.

This optimism is a result of a combination of factors, including favourable weather conditions, with expectations that La Niña rains will be supportive of the 2024/25 agricultural season.

Moreover, the stable energy supply, improvements in port efficiency and the better political climate following the formation of the Government of National Unity are some of the aspects the respondents cited as key factors underpinning their optimism.

This survey was conducted in the last week of November, covering businesses operating in all agricultural subsectors.

The ACI comprises ten subindices, five of which improved notably in the fourth quarter, while the rest declined moderately.

The market share of the agribusiness subindex increased by two points to 67 in the fourth quarter. Most respondents maintained a largely unchanged view, with stakeholders in the winter grains regions signalling an uptick in confidence.

The capital investments subindex was up five points in the quarter to 63. Agbiz says the improvement in sentiment may be owing to the easing in the interest rates, which will allow agricultural businesses and farmers to access more capital for investments at relatively better rates.

“With that said, high-frequency data, such as tractors and combine harvesters sales, have been poor since the start of the year. Thus, we must watch if this sentiment improvement leads to a favourable investment change,” says Agbiz.

Additionally, the subindex measuring the volume of export sentiment increased significantly by 69 points to 83 in the fourth quarter. This is the highest reading since the first quarter of 2022. The respondents in the grains and fruit subsectors were the major drivers of the improvements in this subindex.

Moreover, the sentiment broadly aligns with what we observe in actual trade activity. For example, South Africa's agricultural exports were at $4.12-billion in the third quarter, a 5% increase relative to the same period in 2023.

The cumulative export value for the first three quarters of 2024 is up 4% from last year, at $10.55-billion. This reflects an uptick in the volume of various agricultural exports and higher prices in some products.

Further, the general economic conditions subindex lifted by 20 points to 63 in the fourth quarter of 2024. This recovery in the mood about the economic conditions could be owing to the expected effects of the reduced loadshedding this year and the overall implementation of Operation Vulindlela.

Admittedly, says Agbiz, recent GDP growth figures have been disappointing, but the various market analysts' GDP forecasts are generally optimistic going into 2025.

The general agricultural conditions subindex lifted 17 points to 67 in the quarter, the highest level since the last quarter of 2021, a year of strong agricultural output.

Agbiz says this optimism mirrors the expectations of La Niña rains in the 2024/25 summer season and the positive impact after that on agricultural conditions. The farmers have already started planting across South Africa and are broadly optimistic about the season.

Additionally, the winter crop, whose harvest is in full swing in the Western Cape and other regions, has had a generally better-than-expected harvest.

DECLINING SENTIMENTS

Unlike the other subindices that increased, the turnover subindex confidence was down by four points from the third quarter to 46. This partly reflects the poor summer grains and oilseeds harvest of the 2023/24 production season.

The respondents in livestock, summer grains and some in financial services were broadly downbeat. In line with the turnover subindex, the net operating income subindex declined by five points from the third quarter to 42.

The employment subindex also fell by five points from the third quarter to 42. Provided that the sector is closing the challenging seasons, the decline in sentiment regarding employment is unsurprising.

Still, Agbiz says these figures paint a slightly different picture than recently seen in employment data. South Africa's agricultural jobs rose 4% quarter-on-quarter to 935 000 jobs in the third quarter.

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.

The debtor provision for bad debt was down by eight points to 42 in the fourth quarter, which is a favourable development and shows that the sector may be close to its recovery path.

“Surprisingly, the financing costs indices increased by 33 points from the third quarter to 79. In an environment of easing interest rates, we would have expected to see a decline in this particular subindex,” says Agbiz.

Agbiz notes that the ACI results for the fourth quarter show that the mood in the sector is upbeat, reflective of the potential recovery in agricultural conditions following a challenging season of drought and animal diseases.

"We should build on this optimism for the sector's long-term growth. This will require collaborative efforts between business and government on pushing for the effectiveness of the network industries, better management of the municipalities, further efforts to open new export markets, and managing better the biosecurity matters," concludes Agbiz chief economist Wandile Sihlobo.