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Tuesday, 13 June 2017 06:21

Farming sector optimistic about growth outlook

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The agribusiness sector remains upbeat about growth and job creation despite policy uncertainty on land reform and the drought in the Western Cape.

According to the latest Agricultural Business Chamber (Agbiz) and the Industrial Development Corporation agribusiness confidence index for the second quarter of 2017, confidence declined a marginal one index point to 56 points.

The sector remains in expansionary territory, with a reading above 50.

This is the fourth consecutive expansionary reading, indicating that agricultural activity continues to stabilise following the damage of the 2015-16 drought.

The economy plunged into a technical recession last week, with Statistics SA revealing that real GDP shrunk 0.7% in the first quarter of 2017. Stats SA noted that agriculture and the mining industry contributed positively to growth but not enough to prevent the recession.

According to the agribusiness confidence index, the sub-indices for capital investment, market share, employment, volume of exports and debtor provision for bad debt were the key underlying drivers of the sustained optimism. The general improvement in these sub-indices is partly in line with the robust recovery in agricultural production, particularly summer grains and oilseeds.

Perceptions about employment improved in the second quarter, with the sub-index reaching 59 points, up from 56. This suggested improved expectations of seasonal employment as some horticulture and grain farms began the harvest period, which required more labour, Agbiz noted.

Despite policy uncertainty in the country, the farming community continues to invest in agricultural equipment. This trend is likely to continue, with the perception regarding capital investment up six points from the previous quarter to 62.

The agribusinesses survey suggests that the provision for bad debt might decline. This is underpinned by expectations for large harvests in most areas of the country. The debtor provision for bad debt sub-index eased at 39.

On Monday, Wandile Sihlobo, the head of economic and agribusiness research at Agbiz, said the key underlying factor behind the general sustained optimism was the improvement in weather conditions, particularly the recent summer rainfall and its effect on crops.

"With that said, unfavourable weather conditions in the Western Cape province remain a key risk that could potentially change this picture altogether," said Sihlobo.

AgriSA senior economist Hamlet Hlomendlini said that even after the worst drought since 1992, the agricultural sector had shown strong signs of resilience and it continued to play a significant economic role.

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