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Agri sector outlook cautiously optimistic, despite challenges

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The deterioration in the Agbiz/IDC Agribusiness Confidence Index (ACI) for the third quarter of 2022 was expected, given the spike in fuel prices, rampant food inflation, and the weakening of the rand against the US dollar, among other elements.

According to analysts, South Africa’s agricultural economy is facing a perfect storm, due to numerous challenges including high input costs. Photo: FW Archive

This was according to Dr Piet Croucamp, political analyst at the North-West University Business School, who said the global decline in demand for agricultural products, increasing interest rates, and high production costs, were but a few of the reasons behind the perfect storm the South African agricultural economy found itself in at present.

“The world had barely recovered from the so-called ‘COVID-19 economy’ when it was struck by the war between Russia and the Ukraine. The impact of the conflict on international supplies, price hikes and dampened demand, as well as growing uncertainty on the markets, [has given rise] to increased speculation and price volatility.

“This clearly impacted on South Africa as well. The sad part is that the poorest of the poor always suffers the most in a situation of rising inflation. This means that 70% of South Africans are directly affected by the weakened economy,” he told Farmer’s Weekly.

Agbiz said in a statement that the ACI deteriorated further by 7 points to 53 in the third quarter following a two-point decline in the second quarter.

Higher input costs, persistent animal disease challenges, rising interest rates, intensified geopolitical risks that were disrupting supply chains, as well as ongoing weaknesses in municipal service delivery and network industries remained the key factors that survey respondents cited as their key concerns.

“Still, a level of the ACI above the neutral 50-point mark implies that agribusinesses remain cautiously optimistic about operating conditions in South Africa.

“Therefore, results [for the third quarter of the year] still reflect broadly promising agricultural conditions, albeit not as strong as the previous seven quarters,” Wandile Sihlobo, Agbiz chief economist, said in the statement.

He added that for the long-term growth of this sector, improving the efficiency of the country’s ports, as well as the electricity supply and water, needed to be prioritised.

The country’s roads and rail network, along with crime and the improvement of South Africa’s biosecurity structures, also needed urgent attention from both government and the private sector, he stressed.

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