The Agbiz/Industrial Development Corporation Agribusiness Confidence Index (ACI) rebounded to 51 in the third quarter.

This follows a deterioration to 39 in the second quarter, a period which had heightened uncertainty about whether the agriculture and agribusiness sectors would operate efficiently, when most sectors of the economy were closed under lockdown regulations.

Still, the just-above 50-point neutral mark score implies that agribusiness is only marginally optimistic about business conditions in South Africa, says industry organisation Agbiz.

Agbiz says the index corroborates various high-frequency data 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 throughout the lockdown period.

There are, however, industries within the agriculture sector that were severely affected by lockdown regulations, including the wine and tobacco industries, whose sales were prohibited for prolonged periods during the second and third quarters of the year. 

The ACI comprises ten subindices and most of these showed a notable uptick in the third quarter of the year.

Confidence around the turnover and net operating income subindices improved by 21 and 26 points from the second quarter to 40 and 47 points, respectively.

Agbiz chief economist Wandile Sihlobo says this optimism emanated from firms operating within the field crops, horticulture and financial services. The underpinning driver is large outputs in the 2019/20 production year, coupled with higher commodity prices.

The market share of the agribusinesses subindex improved by one point to 64 in the third quarter. The grain operating agribusinesses were the key drivers of this uptick, while most agribusinesses maintained a generally unchanged view in this specific subindex compared to the previous quarter.

The capital investments confidence subindex improved by six points to 44 in the third quarter. This is linked to generally improved financial conditions for farmers on the back of the larger harvests and higher commodity prices.

The monthly sales of movable assets such as tractors and combine harvesters have been fairly robust of late, at levels higher than 2019 since June.

The subindex measuring the volume of exports sentiment improved by 19 points to 55 in the third quarter. This too is supported by large agricultural output, which, combined with the weaker domestic currency, has led to a notable uptick in exports of agricultural products over the past few months.

Sihlobo reports that the perception regarding general economic conditions in the country improved by ten points to 19 in the third quarter of this year. This, however, is still far off the neutral 50-point mark, which indicates some persistent level of pessimism.

The improvement recorded in sentiment might have been influenced by the belief that the easing of the lockdown regulations would allow more sectors of the economy to resume business activity.

Confidence regarding general agricultural conditions improved by 27 points to 79 in the third quarter, which is the highest level since the second quarter of 2014, indicating a good agricultural season.

“This optimism was expressed by most respondents of the survey and largely based on improved weather conditions in the Western Cape, and prospects of good rains in 2020/21 season across the country. There are already reports of a possible La Niña, which should bring above-average rainfall in most regions of South Africa in the 2020/21 summer season,” Sihlobo explains.

Meanwhile, the sentiment regarding the employment subindex fell by two points to 33 in the third quarter, which is the lowest level since the third quarter of 2005.

This is an indication that agricultural employment probably took a knock primarily because of various health protocols, such as social distancing, that had to be adhered to, in an attempt to limit the spread of the coronavirus. A decline in employment has probably been in the seasonal labour segment.

Apart from the wine and tobacco industries suffering adverse impacts this year, it is still considered a recovery year in agricultural output across all subsectors, including field crops, horticulture and livestock, following prolonged periods of drought in recent years.

The weaker exchange rate and minimal disruptions in logistics have also allowed the sector to register robust export activity in the first three quarters of the year, particularly as port activity normalised.