After a notable uptick in the first quarter of this year, the Agricultural Business Chamber of South Africa (Agbiz)/Industrial Development Corporation (IDC) Agribusiness Confidence Index (ACI) fell by five points to 65 in the second quarter.

Most respondents pointed to the uncertain global trade environment, lingering geopolitical tensions and the domestic animal disease challenge as some of the key factors constraining the sector.

Despite the slight decline, the current level of the ACI implies that South African agribusinesses remain optimistic about business conditions in the country. The better summer rains and improvements at the ports, which have enabled exports with minimal interruptions, are some of the positive aspects reported by respondents.

Six of the ten subindices that make up the ACI declined in the second quarter, while the rest remained unchanged.

The turnover subindex confidence declined by five points to 55.

"We observed a deterioration in sentiment among agribusinesses operating in the red meat sector, while others maintained a roughly unchanged view from the previous quarter.  Similarly, the net operating income subindex fell by five points to 65. The drivers were the same as the turnover," Agbiz points out.

Further, the subindex measuring export sentiment volume fell by 40 points to 60, but remains at a "relatively favourable" level.

"For example, in the first quarter, South Africa's agricultural exports totalled $3.36-billion, up 10% from the same period a year ago, according to data from Trade Map. Thus, the decline in sentiment in the second quarter is a normalisation," Agbiz notes.

The general economic conditions subindex, meanwhile, fell by 15 points to 50, indicating concerns about growth prospects this year on the back of domestic and global constraints.

The market share of the agribusiness subindex also fell by five points to 65, with the majority of respondents maintained an essentially unchanged view, which enabled the high base to lead to a mild decline in sentiment.

Meanwhile, the employment subindex remained flat from the previous quarter at 55 points, while the capital investments subindex at 75 points and the general agricultural conditions subindex at 80 points were unchanged.

Agbiz points out that the subindices of the debtor provision for bad debt and financing costs are interpreted differently from the abovementioned indices, with a decline viewed as a favourable development and an increase signaling growing financial strain.

In the second quarter, the financing costs indices increased by ten points to 85. "This came as a surprise, as the easing interest rates in the country would have made the financing environment better," says Agbiz.

It adds, however, that the debtor provision for bad debt was unchanged at 50 and suggests that some farmers may still face financial pressures from the previous season. "There will likely be more from the livestock industry, which is currently struggling with foot-and-mouth disease."

Agbiz chief economist Wandile Sihlobo says that while the ACI results for the second quarter show that the mood in the sector remains upbeat about a recovery this year, the recovery is likely to be uneven as some sectors struggle with animal disease.

"The dominance of geopolitical concerns among respondents’ views illustrates South Africa's agricultural sector's strong dependence on export markets and the need to work to diversify markets. China, India, Saudi Arabia and Egypt are among the key markets we should expand into. Still, as we drive the diversification, we must work vigorously to retain the access we have in various markets in the EU, the UK, Africa, Asia, the Middle East and the Americas, among others," he adds.

Sihlobo further stresses the importance of collaboration between business and government on addressing biosecurity issues in the agriculture sector, along with pushing for more efficient network industries, better management of municipalities and the implementation of the Agriculture and Agroprocessing Master Plan, "which is key for the long term growth of the sector", he states.