Confidence in agribusiness dropped slightly

Confidence in agribusiness dropped 7% in the first quarter of 2014, compared to the last quarter of 2013 and 4% in comparison to the same period last year. 

 

Uncertain global and local economic conditions places the South African economy under severe pressure. Advanced economies that are reliant on the emerging markets for their growth, tend to neglect to recognise the recovery of these markets.   This results in various challenges for the emerging markets, such as slow growth, high inflation, exchange rate depreciation and capital flows.

 

South Africa, specifically, experiences a decline in retail sales, low consumer confidence, low fixed capital investment, and now also the recent hike in interest rates.

The turnover and net operating income of the agribusinesses are largely linked to the agricultural commodity and farm gate prices and reflects the impact of input costs and cost of doing business. Very small, and almost insignificant changes was indicated over the past year. Due to the seasonality of agriculture, the quarter to quarter changes is not very indicative. However, the responses in this quarter, clearly indicated how the lower expectations for the summer grain harvest, as well as the impact of the earlier flooding and hail damage in the fruit industry impacted on the expectations for the turnover in the short run. The expectations for the general agricultural conditions was indicated to have improved, which might suggest that production output could be higher, than currently expected, in the second quarter.

Accordingly, the expectations for volumes exported are also down, both in the short and long term. Generally it would be expected that volumes would increase with the weak exchange rate, but it became clear that due to the decrease in production output, exporters cannot utilize the potential increase in foreign earnings.

The agribusinesses expected economic growth to further slowdown; marginally in the short term, but significantly in the longer term. The growth in the economy reflects the confidence in the purchasing power of the consumers, which directly impact the agricultural sector, whether or not the agribusiness is directly involved in retail.  READ MORE