Confidence in South African agriculture falls further

The South African agricultural sector's confidence in its future prospects has fallen to a nine-year low as a result of uncertainty over the government's land reform policy, an industry survey shows.

South African agribusinesses' confidence in business conditions in the country has fallen to the lowest level since the fourth quarter of 2009, according to the Agbiz/IDC Agribusiness Confidence Index released on Tuesday.

The index — compiled by industry body Agbiz and the Industrial Development Corporation — weakened further to 42 in the last quarter of the year, following a decline to 48 points from 54 in the third quarter.

The results, which are below the neutral 50-point mark, imply that farming co-operations are downbeat about business conditions in South Africa, Agbiz said. The survey was conducted in November and included agribusinesses operating in all agricultural subsectors across South Africa.

According to Agbiz, the sector's low confidence level is partly due to a lack of clarity over a land reform process that is being expedited by the African National Congress (ANC) ahead of next year's general election. The survey results show that some respondents believe the lack of clarity regarding the policy proposal could negatively affect investments in the long term.

On 31 July, president Cyril Ramaphosa announced that the ANC would change the South African constitution to make it more explicit that land expropriation without compensation is allowed where it is in the public interest.

"There is also a growing body of opinion, by a number of South Africans, that the constitution as it stands does not impede expropriation of land without compensation," Ramaphosa said.

The ruling ANC party has increasingly come under fire for its slow progress with the process, which is meant to offer redress to South Africans who were dispossessed under the apartheid regime.

Yesterday, the National Council of Provinces approved the recommendation to amend section 25 of the constitution in line with the ANC's decision, following the National Assembly's approval on 4 December. With the backing of both houses of parliament, a formal bill can now be drafted.

"We doubt that there will be a meaningful improvement in confidence in the near term if there is still no clarity regarding the land reform policy in South Africa. Any reckless move in policy which might undermine property rights could dent investment and long-run growth prospects in the sector," said Agbiz's head of agribusiness research, Wandile Sihlobo.

But some industry participants believe factors other than the land reform question are to blame for the negative sentiment.

Greenlands Fertilizers' general manager, Wayne Degan, points to a nearly five-year drought and a steep fall in the price of corn, the agricultural commodity that accounts for the most fertilizer demand in South Africa, as contributing factors.

Agribusinesses are also experiencing increasing difficulty in accessing the credit they need to buy consumables such as seed, fertilizer and diesel, he said.

However, these credit constraints are partly due to a sharp decline in the price of agricultural land, the key asset that serves as farmers' security — and this has been triggered by uncertainty over the land reform question, another industry participant pointed out.

The Fertilizer Association of Southern Africa's chief executive, Pieter Haumann, said that so far the prospect of land reform has had no measurable impact on fertilizer demand. South Africa consumes around 2mn t of fertilizer per year, of which 50-60pc is imported, he said.

Although farmers are concerned about the issue, Haumann was "carefully optimistic" that land reform would not be implemented recklessly.

Below-average rainfall in the central and western parts of South Africa, which has delayed planting activity in these areas, weighed heavily on sentiment about general agricultural conditions in the last quarter of 2018, the Agbiz survey showed.

The prospects of an El Nino event in the 2019 summer season might also have affected the respondents' perception, according to Agbiz.

Optimism about the sector's earnings prospects fell due to a year-on-year decline in agricultural output, despite crop prices being slightly higher than last year.

A South Africa-based fertilizer trader said the late rains have resulted in high stocks, particularly of MOP.

"Fortunately the land reform issue has not yet impacted fertiliser purchases, with water still being the main issue — although farm prices have apparently decreased," the trader said. "It's hoped and expected that reason will prevail and productive agricultural land will not be confiscated without compensation. The ruling party is probably also using the land reform issue to gain votes."

In the second quarter of 2018 South Africa's economy slipped into a recession, partly due to a 29.2pc fall in agricultural production against the first quarter, when output declined by 33.6pc.

But this week the state-owned statistics agency revealed that in the third quarter, GDP grew by 2.2pc quarter on quarter, lifting the country out of recession.

The agriculture sector also bounced back from two consecutive quarters of negative growth to record a 6.5pc rise in the third quarter. Strong growth in the production of field crops, horticultural cultivation and animal products contributed to the rebound, the agency said.