31 January 2008
The profitability of South Africa’s agricultural businesses rose by a significant 24% last year, mainly as a result of increased turnovers and improved management styles, the PricewaterhouseCoopers Agribusiness Benchmarking Survey finds.
Farmers planted more crops due to optimism about expected higher prices, leading to a rise in the turnover of trade terms (an increase of 27% over the previous year), parts (28%), implements (43%) and grain transactions (67%).
“Agriculture is and remains the lifeblood of the country’s economy,” PricewaterhouseCoopers said. “In fact, along with primary food processing, it is one of the largest suppliers of job opportunities worldwide.”
These are some of the findings of the professional services company’s third such survey, conducted among 21 agricultural businesses during November 2007. The survey covered the 2007 reporting period and focused on businesses with a combined turnover of R20.5-billion.
According to PricewaterhouseCoopers’ national agribusiness leader, Kobie Bekker, the survey supplies practical information that will enable agricultural businesses to compare their operating results among themselves and extend their knowledge of business conditions.
“The results especially indicate the use of improved management techniques by agricultural businesses during the period,” Bekker said. “This is apparent particularly from the improved cash position in which agricultural businesses find themselves, while the most risky asset, namely debtors, has been more strictly controlled at the same time.”
This led to a total turnover increase of 51%, while debtors only rose by 19%, leading to the average outstanding debtors book decreasing from 104 to 94 days.
The economic environment during the survey period was significantly positive, with inflation and interest rates relatively low, mainly due to the 15% appreciation in the value of the rand.
“Unfortunately both of these rates began to tend upward again by the end of the survey period,” he said. “Thereafter elements of nature, especially the drought, set agriculture back tremendously.”
On a more positive note, Bekker said that the cash flow of agriculture in general should improve due to low world stock levels of grain – as long as harvests, exchange rates, interest rates and fuel prices remained within certain limits.
Land reform, BEE
“However, producers’ profitability remains under pressure due to international competition with Western countries that subsidise input costs,” Bekker said. “Coupled with this, business confidence remains impaired by local key issues such as land reform, which is not showing progress, and the production price index, which has hopefully reached its highest turning point.”
He pointed out that agricultural businesses’ focus on black economic empowerment (BEE) was in general positive, with the pressure to transform increasingly arising from the agricultural value chain.
The vast majority of participants had already begun implementing their BEE plans, with additional business opportunities being a major incentive.
“The greatest problem that has been identified appears to be the delay in finalisation of the Agri-BEE charter,” he said.