Investor Confidence in South African Agriculture

1
Investor Confidence in South African Agriculture

• AMT AGRI OUTLOOK CONFERENCE
• 1 2 October 2008
• John Purchase
• Agricultural Business Chamber (ABC)

2
Introduction

• Broad South African Agriculture situation
• ABC/IDC Agribusiness Confidence Index
• Factors impacting on confidence in the
  agricultural business sector
• What must be done to place agriculture on a high
  growth scenario path?

3
Broad South African Agriculture situation
4

• Role of Agriculture in
• SA Economy
• Strategic sector provides food, fiber and wine,
  satisfying two basic needs of man ( others!)
• Has provided national food security since the
  start of the 20th century (Pop 4,0 million),
  right through to the 21st century (Pop 47,8
  million, 60 in cities)

5

• Role of Agriculture in
• SA Economy
• With Agro-food complex, 14 of GDP (OECD, 2006)
• Further forward linkages, around 20-30 of GDP
• 46 000 commercial producers, down from
• 58 000 in 1993 (Ag censa in 1993 2002)
• In 2007, R29,5 billion exports (8 of total SA
  
• exports)
• 940K labourers, 10 of SA work force (2002)
• 630K labourers, 8 of SA work force (2006)

6
Y/Y Change for Agric GDP
7
Contribution of Primary Agriculture to GDP
(Source Statssa)

8
Investment situation and climate

• Gross fixed capital formation has remained
• stagnant
• Capital stock in Agriculture has declined
• over the past decade, but showing signs
• of a turnaround due to improved
  profitability.

9
Gross fixed capital formation Agriculture,
forestry and fishing 1994-2006
R million
Source Sector Plan Review, 2008
10
Capital Stock in Agriculture (Constant 2000
prices) 1995 - 2007
Source Sector Plan Review, 2008
11
Fixed capital formation in agriculture as a of
SA total

12
Performance of Sector
13
Performance of SectorGross Value of Production
in R million
R'million
14
Agricultural Export and Import Volumes 1998 -
2006
Source Sector Plan Review
15
Agricultural Trade Balance 1998 - 2006
Source Sector Plan Review
16
Measuring Analysis Framework

• Competitiveness Status Index (ACS)
• Agribusiness Executive Survey (AES)
• Determinants of Competitiveness Index (ADC)
• ABC/IDC Agribusiness Confidence Index (ACI)

17
ABC/IDC Agribusiness Confidence Index
18
Defining confidence

• Confidence is in effect, a belief, a
  self-assurance in ones own ability. It is
  essentially a feeling of having an expectation of
  success (Vealey, 2001).
• Business confidence is a belief, an assurance in
  the business environment, companys resources and
  in the businesss ability to compete (ABC, 2001).
  

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Methodology

• The measure of business confidence is an
  important
• indication of the status of the
  decision-making
• environment in which businesses operate.
• Since 2000 data collected every quarter from a
  representative group of agribusinesses.
• Survey of senior executives of agribusinesses
• Information analysed by a team of experts and
  used to construct the ACI on a quarterly basis.

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Is there confidence in the sector?
Devaluation of Rand Sharp commodity price
increases
Economic growth Increases in commodity prices
High commodity prices
Drought
Strength of Rand Low product prices Unfavourable
agricultural conditions
Economic slow down
1st
2nd
4th
3rd
2008
Favourable weather
21
Factors impacting on confidence in the
agricultural business sector
22
Y/Y movement in sub-indices of ABC/IDC
Agribusiness Confidence Index (3rd Quarter)
Sub-indices Year-on-year movement
Turnover Increase
Net operating income Increase
Employment Increase
Capital investment Increase
Economic growth Huge decrease
Volume exports Decrease
General agricultural conditions Increase
Market share of the business Slight decrease
Debtor provision for bad debt Increase
Financing costs Slight increase
23
What must be done to place agriculture on a high
growth scenario path?
24
Current broader environment

• Negative impacts
• Political uncertainty, also internationally
• Crime, safety and security
• Macro-economic situation, esp. internationally
• Infrastructure constraints, esp. electricity
• Resource situation, e.g. water quality
• Policy issues, esp. Trade and Tariff Policy
• Competitiveness (Technology and innovation!)

25
ABC Agribusiness Competitive Status Index
Government support Low interest rates Low
inflation
Sanctions Marketing boards Drought High interest
rates
1st phase deregulation
Deregulation (from co-ops to companies Weak
Rand New markets
Strong Rand Drop in Business confidence
Drought Political Uncertainty
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Current broader environment

• Positive impacts
• Democracy, albeit immature and developing
• Free press
• Independent Judiciary
• Market economy (part of global system)
• Greater cooperation between Govt and PS
• More external and internal investors
• New technology/expertise through multinationals
• General commodity and agribusiness infrastructure

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Conclusion

• Agriculture key to South Africas development
• Recent signs of improved growth and confidence in
  sector after difficult period
• Still many major concerns that need to be
  addressed urgently to put agriculture on high
  growth scenario path finalize and implement
  Strategic Plan for SA Agriculture
• Challenge to new political leadership and private
  sector to engage constructively to create
  improved confidence in agricultural sector

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THANK YOUwww.agbiz.co.za
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Group Structure of MGK Temo
Intrax
Share Trust
Zeder
Public
MGK Holdings
17,1
15,1
18,6
29,0
20,2
MGK BUSINESS INVESTMENTS LTD.
70
SIYAKA
80,5
MGK Bee Employee Share Trust
TEMO AGRI INVESTMENTS
19,5
10
MGK Bee Farmer Share Trust
20
30
OUR TRACK RECORD
Season No of farmers Has 000 Crop Loans R000000
03/04 22 2 0,4
04/05 45 4 3,0
05/06 75 9 7,1
06/07 07/08 08/09 128 129 Est 270 16.3 17.1 40 35 Dryland 5 IRR 21,1 41.7 130
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TEMO AGRI SERVICES

• Hereby we wish to thank the following
  organizations / departments for their interest
  in, and loyal support to the farmers
  participating in the Temo Projects.

Crop Insurance
Dept Agriculture, Environment and Conservation
Rustenburg North-West Government
Maize Trust
Oliesade Advieskomitee Olie-en Proteïnsade
Ontwikkelingstrust