JOHANNESBURG — LAND policy uncertainty and the drought in the Southern African Development Community (Sadc) region are driving down confidence levels in the agribusiness sector. Confidence levels in the first quarter of 2016 show that Southern African business confidence contracted to 42,87 points compared to 42,91 in the last quarter of 2015. This is according to the Agbiz/IDC Agribusiness Confidence index, constructed quarterly by the Agricultural Business Chamber (AgBiz) on behalf of the Industrial Development Corporation (IDC).
An index below 50 points indicates that business activity in the sector contracted, which shows businesses are holding a pessimistic view about the prospects of doing business improving.
On a year-on-year basis, the contraction is even bigger, being 15 percent lower in the first quarter of this year than the first quarter of 2015, when it was above 50 points.
Wandile Sihlobo, head of AgBiz’s economics and intelligence, said the agribusiness sector in SA had been below 50 points in the past four consecutive quarters, driven mainly by the drought between 2003 and 2005, and the period marked by the international financial meltdown between 2008 and 2009.
“Against this background, the latest confidence (index) comes as no surprise as the industry experiences an unprecedented El Niño-induced drought, with the fourth quarter of 2015 agricultural Gross Domestic Product (GDP) having contracted by 14 percent quarter on quarter,” he said.
Agricultural GDP is likely to be in recession in this quarter and the next as a result of the aftermath of the current drought, as well as external factors that seem to be constraining growth in the sector. These included the expected rise in financing costs, low investment levels as well as policy uncertainty, Sihlobo said.
There were indications that the current El Niño was progressing to La Niña, with the US National Ocean and Atmospheric Administration indicating that the possibility of a La Niña occurrence towards the end of this year had increased from 50 percent to 75 percent. A La Niña cycle might lead to above-normal rainfall, replenishing soil moisture “which is favourable for livestock and crop production”.
Figures from the South African Agricultural Machinery Association (Saama) show that sales figures for the year-to-date for tractors and combine harvesters were between 8 percent and 16 percent lower than last year’s figures.
Wynn Dedwith, chairman of Saama, said industry expectations were that tractor sales would be down on last year by 15-20 percent. — BDLive.