Confidence in agri-business soars
Hopewell Radebe - businessday.co.za
September 13, 2010
ALTHOUGH the agricultural sector’s confidence level in the third quarter is 53% higher than the same quarter last year, it was less than the second quarter of this year, indicating that agri- businesses are under pressure from cash-flow problems.
Confidence is measured quarterly by the Agricultural Business Chamber and the Industrial Development Corporation through their quarterly ABC/IDC agribusiness confidence index.
The index, constructed from 10 subindices, represents the perceptions and expectations of agri-businesses serving all industries within the sector .
Lindie Stroebel, economic intelligence manager at the Agricultural Business Chamber, said last week that the 5% fall in confidence since the previous quarter was of concern as it “took away” from the excitement of the year-on-year increase.
The index has been measured at a time when the higher volumes of grain production have compensated for lower commodity prices and have brought about a general increase in turnover.
Ms Stroebel said farmers are making less money and this directly inhibits their ability to invest in improved technology and other means of enhancing their efficiency.
“Farmers’ ability to repay their production loans also comes under threat,” she said.
“One would expect that the relatively lower interest rates would enable lower financing costs and debtor provision for bad debt, but the farmers’ cash- flow problems, due to the low commodity prices, also reflect on that of the agri-businesses.”
Agri-businesses’ balance sheets are largely dependent on their clients’ ability to pay, which is directly determined by their earnings. “The cash-flow challenges would lead to capital expenditure, employment and debtors being very closely monitored and managed,” Ms Stroebel said.
“ I t is now more important than ever to keep the cost of doing business and the cost of production as low as possible.”
L ack of excitement in the agri-business sector is attributed to the continu ed weakening of the euro, which is adding strain to the earnings of SA’s exporting industries, especially when exporting to European Union countries.
The index suggests that long- term intervention will be required to stimulate the export industry.
It also suggests that certain exporting industries have benefited from the exporting environment, which improved somewhat compared with the same time last year, which stimulated turnover and income to some extent .