The Agribusiness Confidence Index (ACI) has recovered by ten points to a level of 48 in the third quarter of the year after dropping to a 15-year low in the second quarter.

While the second quarter held extreme uncertainty over South Africa’s national elections, the formation of the Government of National Unity (GNU) seems to have eased that concern and returned the focus of survey respondents back to fundamental agricultural matters.

The ACI, however, remains below the neutral 50-point mark, which implies that South African agribusinesses remain concerned about business conditions, including a drought in the 2023/24 summer crop, poorly maintained road infrastructure, weak municipal service delivery, persistent animal disease challenges and heightened geopolitical tensions globally.

Agricultural Business Chamber of South Africa (Agbiz), which compiles the ACI together with Industrial Development Corporation, says there remains room for improved port efficiency amid organised industry efforts to build a productive relationship with Transnet.

Six of the ACI’s ten subindices recorded improvements in the third quarter, including the turnover subindex which grew by 19 points to 50.

This optimism stemmed primarily from firms operating in the winter crops and financial services segments.

Meanwhile, those in red meat and summer grains remain somewhat downbeat, reflecting the impact of the recent mid-summer drought and lingering animal diseases.

Others in the machinery supply industry maintained a roughly unchanged view from the previous quarter.

In line with the turnover subindex, the net operating income subindex improved by 12 points to 46 in the third quarter.

The employment subindex recovered by eight points to 64, which Agbiz chief economist Wandile Sihlobo deems surprising given that agricultural employment was down 5% quarter-on-quarter to 896 000 t in the second quarter as firms continued to experience financial pressures from the drought and animal diseases.

The optimism about jobs could be linked to expected better production conditions in the season ahead, he notes.

Encouragingly, the capital investments subindex grew by 11 points to 57 in the third quarter. The change in sentiment may be linked to an expected easing in the interest rates that may allow agricultural businesses and farmers to access more capital for investments at relatively better rates.

Still, high-frequency data, such as tractor and combine harvester sales, continue to paint a bleak view of moderate sales. “We will have to watch and see if this sentiment change results in a meaningful change in the investment pattern,” Sihlobo says.

The general economic conditions subindex recovered by four points to 43 in the third quarter, which could reflect positivity about the reduction in loadshedding this year.  

The general agricultural conditions subindex increased by four points to 50 in the third quarter. Sihlobo explains that this optimism mirrors the expectations of a La Niña in the 2024/25 summer season that starts in October.

This weather event would bring much-needed rains for summer crops and other agricultural activities. Additionally, the winter crop season, which is currently under way, is experiencing relatively favourable production conditions.

The subindex measuring the volume of export sentiment decreased by seven points to 14 in the third quarter. Sihlobo attributes this deterioration in sentiment to the potential decline in export volumes this year on the back of the lower volumes resulting from a tough summer season drought.

The market share of the agribusiness subindex lowered by one point to 64 in the third quarter. Admittedly, most respondents maintained a reasonably unchanged view on this point, and the current reading is a neutral 50-point mark, which makes it less worrying.

The debtor provision for bad debt grew by 19 points to 50 in the third quarter, which is an unfavourable development and shows prospects of harsh financial conditions in some farming businesses. Sihlobo says this could be linked to the recent drought and animal disease.

Moreover, the financing costs indices increased by 23 points to 46, which is surprising in an environment of expected easing of interest rates.

"Although we are moving towards a promising summer season, and that may bring increased positive activity in the South African farming sector, the long-term growth prospects of the sector, which would also deliver jobs, hinges on the GNU's ability to resolve the challenges of the network industries, improve the functioning of the municipalities and open new export markets," Sihlobo concludes.