AGBIZ MEDIA DAY South African Agriculture and Agribusiness: Outlook 2018 4 December 2017 By: Dr John Purchase
For today……. 1. Political economy: Challenging and complex environment evolving 2. SA Agricultural Economy and Agbiz/IDC Agribusiness Confidence Index 3. Trade and competitiveness 4. Legislation environment 5. Wrap up 2
Challenging and complex environment evolving • Global socio-political environment • Local socio-political environment • Consumer trends and activism – need to analyse and note • Technology dynamic – 4 th Industrial Revolution: Jobs dynamic • Climate Change – adaptation and mitigation: Western Cape impact? • Increased regulation of agro-food system: Food safety & health • Sustainable use of, and rights allocation to, water and land as critical natural resources • Utilisation of renewable energy sources – energy security • Trade agreements – “Trade wars are the wars of the future” • Big Data – mine and analyse to drive efficiency • Human capital and skills – the talent factor NB! 3
Global Socio-political Developments • Multi-polar global power dynamic – economic power shift to Asia • Middle East catastrophe – migration effect to Europe • Religious fundamentalism, e.g. ISIS, Boko Haram, Al Qaeda, etc. • Brexit and European Unity: uncertainty • President Trump dynamic • Ambitions of China & Russia, their geo-political positioning? • North Korea a real nuclear threat? • Africa’s demographic dividend and food insecurity? • Globalisation and Interconnectivity still massive driver • Blockchain and Bitcoin – IMF CEO quote More interconnected ➜ greater uncertainty ➜ less control ➜ more risk ➜ greater opportunity!
Demographics….. Either massive opportunity, or a critical risk……!
2017 Global Food Security Index http://foodsecurityindex.eiu.com. South Africa ranks 44 th Source: Economist Intelligence Unit/DuPont
Global Socio-political Developments • Multi-polar global power dynamic – economic power shift to Asia • Middle East catastrophe – migration effect to Europe • Religious fundamentalism, e.g. ISIS, Boko Haram, Al Qaeda, etc. • Brexit and European Unity: uncertainty • President Trump dynamic • Ambitions of China & Russia, their geo-political positioning? • North Korea a real nuclear threat? • Africa’s demographic dividend and food insecurity? • Globalisation and Interconnectivity still massive driver • Blockchain and Bitcoin – IMF CEO quote More interconnected ➜ greater uncertainty ➜ less control ➜ more risk ➜ greater opportunity!
Local Socio-political Developments • Deep divisions in ANC – pro-Zuma and anti-Zuma factions. • Division manifested in ANC loss of three major Metros, viz. Johannesburg, Tshwane and Nelson Mandela Bay, to coalitions. • New and courageous approach by certain current and ex ANC Ministers and MP’s (e.g. Eskom, SABC, State Capture & Vote of no confidence) • Bitter ANC succession race and elective conference – Dec 2017 • June ANC Policy Conference resolved very little – positions only hardened • DA & EFF viable opposition parties and ruling coalitions? • Major political uncertainty – Zim effect? Not necessarily all bad though. • Lack of GDP growth and Competitiveness (WEF) decline a real concern • Massive unemployment (>27%), especially amongst the Youth (>50%) • Crime & Security factor, including corruption and farm safety concern. • Calls for radical economic transformation (RET) will not abate. • Land & water reform will be at the centre of demands. • HLP Report on Key Legislation and Fundamental Change • South Africa needs a turnaround strategy.
For today……. 1. Political economy: Challenging and complex environment evolving 2. SA Agricultural Economy and Agbiz/IDC Agribusiness Confidence Index 3. Trade and competitiveness 4. Legislation environment 5. Wrap up 9
AGBIZ MEDIA DAY SA agricultural economy: Current conditions Wandile Sihlobo (wandile@agbiz.co.za) 04 December 2017 Pretoria, South Africa
Overview… • Confidence (business and agribusiness) and growth in the sector • Business and consumer confidence remain low • Agribusiness confidence index also in a contractionary tarrain • Weather outlook for the upcoming summer season • Conditions remain favourable - with prospects of good rainfall until February 2018 • Crop forecasts and equipment sales performance • We expect a y/y percentage decline in maize, but sill good performance • Equipment sales have been solid due to increased area plantings • Agricultural labour market • The past 3-quartres have been on a declining trend due to reduced activity in the WC 11
Gene neral al SA busine iness and consum nsumer er conf nfid iden ence e rem emain ain depressed… optimistic view regarding business conditions in the country. … 60 100 90 40 80 70 20 60 Index 0 50 Index 40 -20 30 20 -40 10 -60 0 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 FNB/BER Consumer Confidence Index (LHS) RMB/BER Business Confidence Index (RHS) Source: BER, Agbiz Research 12
Why is business confidence important?… optimistic view regarding business conditions in the country. … BER BCI (lhs) Private fixed investment (% y/y) 90 20 80 15 70 10 60 5 50 0 40 -5 30 -10 20 -15 10 -20 00 02 04 06 08 10 12 14 16 Source: BER, Barclays Africa, Agbiz Research 13
Agribusinesses’ Confidence is also in contractionary terrain and could lead to a decline in GDP (agri)…. in the country. … 70 65 60 55 Index points 50 45 40 35 30 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *Agbiz/IDC Agribusiness Confidence Index Source: Agbiz Research 14
Agbiz/ID iz/IDC C Agribusi ibusine ness ss Conf nfid iden ence e has proven ven to be good d directional indicator for agri. GDP growth (but now?)… 60 100 90 40 80 70 20 60 0 % q/q saar 50 Index 40 -20 30 20 -40 10 -60 0 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 1st 2nd 3rd 4th 4th 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 GDP (Agriculture) (LHS) Agbiz/IDC Agribusiness Confidence Index (RHS) The shift between the “emotional side of agriculture and hard data” can partly be explained by policy uncertainty, • particularly Land Reform ahead of the ANC conference… • The survey respondents from the WC region were also pessimistic due to dryness – this too partly explains the shift between confidence and agricultural GDP growth… Source: Statistics South Africa, Agbiz Research 15
SA economy and agricultural economy growth forecasts… 25.0 6.0 5.0 20.0 15.0 4.0 15.0 3.0 10.0 5.8 % y/y % y/y 2.0 2.4 5.0 1.0 0.0 0.0 -5.0 -1.0 -7.8 -10.0 -2.0 Agricultural GDP f/cast Total GDP (rhs) f/cast Source: Statistics South Africa, Agbiz Research 16
Agriculture’s share in the economy is small and has declined over er time … 20.0 18.0 16.0 % contribution to GDP 14.0 12.0 10.0 8.0 6.0 4.0 2.2 2.0 0.0 Source: Statistics South Africa, Agbiz Research 17
While the agri sector’s share in SA economy is relatively small….risk to collateral, “expropriation without compensation” Total agriculture farm debt • Private persons Other debt 160 Other financial 2% 1% institutions … Agricultural 140 cooperatives 7% Land and Agricultural Bank 120 29% Rbn 100 Commercial banks 60% 80 60 40 20 - 1980 1985 1990 1995 2000 2005 2010 2015 Nominal Real 18
Will the weather behave well in the next few months? 19
The story ry remains ains fairly rly unchanged changed from the prev evio ious us mee eeting ing – posit itiv ive e prosp ospec ects ts for r 2017/18 /18 summ mmer r season… 20 Source: Earth Institute, National Oceanic and Atmospheric Administration (US)
This chart art basicall ically y shows ws that t the chanc ance of a La Niña a form rming ing in late e 2017 is arou ound nd 70% % -- -- triple le the normal rmal likelihood… 21 Source: Australian Bureau of Meteorology
Implications for the summer crop season and equipment sales? 22
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