The Agricultural Business Chamber of South Africa (Agbiz) / Industrial Development Corporation (IDC) Agribusiness Confidence Index (ACI) was unchanged in the second quarter, following a five-point decline to 44 in the first quarter.

The ACI level in the first two quarters of this year is the lowest since the second quarter of 2020, when Covid-19 lockdown restrictions were first implemented.

Notably, the second-quarter reading marks the third consecutive quarter below the neutral 50-point level, implying that agribusinesses remain downbeat about business conditions, says Agbiz chief economist Wandile Sihlobo.

"Intensified geopolitical tensions, unfavourable draft water regulations, persistent episodes of loadshedding, rising interest rates, poor road conditions and ongoing weaknesses in municipal service delivery were the key factors survey respondents cited as their prime concerns," he highlights.

The ACI second-quarter results show persistent concerns among agriculture and agribusiness role-players about the economic conditions of the sector.

"There remains great potential for growth in the sector, but that can only materialise if there is a favourable policy environment and supporting infrastructure. The recent draft water regulations are an example of policy missteps that South Africa would do well to avoid.

"Importantly, addressing the biosecurity issues, improving roads and opening more export markets are key to improving sentiment and the sector's fortunes."

Six of the ten subindices of the ACI declined marginally in the second quarter of the year.

The capital investments subindex fell by four points to 55 from the first quarter of the year. Although this subindex remains above the 50-mark point, the declining trend corroborates the weakening trend in tractor sales and other equipment that is starting to be observed in the sector.

"Notably, the concerns about water rights regulations and weaknesses in municipal service delivery and road networks are critical risks to investment in farming businesses," Sihlobo points out.

Further, the general economic conditions subindex was down one point from the first quarter to ten, which is the lowest level since the second quarter of 2020, when Covid-19 lockdowns were first implemented with various sectors closed, except for agriculture and the food value chain.

"The bleak assessment of general economic conditions speaks to the current challenging business conditions brought by persistent energy shortages, inefficiencies in the network industries, rising geopolitical tension and higher interest rates, amongst other challenges," he says.

Meanwhile, the turnover subindex fell by five points to 64 from the first quarter. However, its current level is well above the long-term average, signalling that some farmers, specifically those in grains and oilseeds, will likely benefit from the ample 2022/23 season harvest.

Similarly, the net operating income subindex fell by six points to 61, reflecting that profitability will likely be squeezed amongst farming business enterprises as commodity prices have declined notably in recent months, and farmers had planted earlier in the season when input costs were reasonably high. This is true not only for grain farmers but across the various subsectors.

The market share of the agribusiness subindex dropped by one point in the second quarter to 57. The respondents that mainly drove this notable decline are within the horticulture subsector, while other subsectors maintained a relatively unchanged view from the previous quarter.

The subindex measuring the volume of exports sentiment declined by 3 points to 60 in the second quarter. This illustrates the expected decline in export volumes this year from the robust levels of 2022, although the harvest is reasonably decent in all major crops and fruits.

In contrast to the other subindices, the employment subindex remained flat from the first quarter at 48. This is below the 50-point neutral mark and signals concern about employment conditions in the sector, especially as the general business conditions are constrained by a range of factors alluded to earlier.

However, the employment data for the sector painted a robust picture for the first quarter, showing that 888 000 people were employed in primary agriculture, which is up 3% quarter-on-quarter and 5% year-on-year, Sihlobo notes.

Further, the general agricultural conditions subindex rose 17 points to 48 in the second quarter. This optimism mirrors the favourable agricultural production conditions in the summer crop regions where South Africa expects decent harvests.

For example, the 2022/23 maize harvest is estimated at 16.1-million tonnes, which is up 5% y/y and the third largest on record. The soybean harvest is estimated at a record 2.8-million tonnes. There are also expected good harvests in other field crops such as sugar cane, horticulture, and livestock. Further, the outlook for winter crops is also positive following high rainfall in key producing provinces, such as the Western Cape.

Meanwhile, 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 uptick signals growing financial strain, he said.

"In the second quarter, the debtor provision for bad debt was down by three points to 33, which signals better financial conditions on the back of a large summer crop.

"However, the financing costs indices rose by four points to seven, indicating the challenging environment of higher interest rates," Sihlobo says.