Agricultural business confidence in South Africa is withering on the vine of state failure, which looks set to reap a recession from a parched economic landscape.

The Agbiz/IDC Agribusiness Confidence Index (ACI) fell 10 points in Q4 to 40. This takes it into negative terrain, below the neutral 50 mark, and is its lowest read since Q2 2020, when confidence evaporated in the face of the initial, hardest phase of Covid lockdown measures.

The bottom line is that most agribusinesses in South Africa are downbeat about prevailing business conditions.

“This pessimism emanates from the numerous challenges facing the sector such as intensified delays and inefficiencies at the ports, deteriorating rail and road infrastructure, worsening municipal service delivery, increased geopolitical uncertainty and persistent episodes of load shedding,” Agbiz said in a statement. 

Eight of the 10 subindices that comprise the ACI declined in the quarter. This excludes the debtor provision for bad debt and financing costs subindices, which are measured differently. 

One particularly worrying trend is reflected in the capital investments subindex, which plunged 30 points from the previous quarter to 43. 

“This reflects the declining spending pattern on agricultural equipment and machinery we have observed over the past few months,” Agbiz said. 

And if farmers are not spending money on things like this in South Africa’s capital-intensive agriculture sector, it underscores their mounting concerns. 

“Following a sharp decline in Q3 2023, the subindex measuring the volume of export sentiment fell further by a point to 42 in Q4,” Agbiz said. 

This means farmers expect a fall in export volumes from the record levels seen in 2022 despite bumper harvests for key export crops such as citrus. But the growing dysfunction at Transnet’s ports is leaving the hopes of many farmers high and dry.  

One green shoot was the debtor provision for the bad debt subindex, which fell five points to 37 – a favourable development, as a decline on this front is a positive signal. 

But the financing costs index rose 7 points to 13 – a negative development – “… signalling that agricultural firms are still worried by the elevated interest rate in an industry where farm debt is hovering around R200-billion”. 

The employment subindex fell 12 points in Q4 from Q3 to 47, but this goes against the grain of jobs data that suggests agricultural employment grew 10% year-on-year to 956,000 in Q3. 

The Q4 read, which will only come out in the New Year, could show a reversal in employment numbers.

Meanwhile, concerns about the impact of the El Niño weather pattern – which typically heralds drought in this region – have faded somewhat, but in the longer run is still casting a cloud of uncertainty over the sector.  

Overall, the wilting of confidence in the sector in Q4 is also another signal that South Africa’s economy may have tipped into a recession after contracting 0.2% in Q3. 

That contraction was led by a 9.6% fall in agricultural output during a quarter in which agribusiness confidence levels were 10 points higher than the Q4 read. 

The conditions for the South African economy to grow are proving to be infertile. DM