Last year the profitability of agricultural businesses in South Africa rose by a significant 24% as against the previous year, according to the PricewaterhouseCoopers (PwC) Benchmarking Survey. This was mainly the result of increased turnovers and improved management styles.

The third PwC Benchmarking Survey was conducted during November 2007 among 21 agricultural businesses and covered the 2007 reporting period, focusing on businesses with a turnover of R20,5 billion.

“The results especially indicate the use of improved management techniques by agricultural businesses during the period,” said PwC National Agribusiness Leader Kobie Bekker. “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. Although the total turnover increased by 51% in this competitive industry, debtors rose by only 19%. As a result, during the period the average outstanding debtors decreased from 104 to 94 days. This in itself attests to higher management objectives being sought.”

The economic environment during this period was significantly positive. The inflation and interest rates were 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. Thereafter elements of nature, especially a drought in the northern grain areas, set agriculture back tremendously.

Bekker continued: “The cash flow of agriculture in general should improve due to low world stock levels of grain, as long as harvests and the most significant exchange rates remain normal. To this end, interest rates and fuel prices will also need to remain within certain limits. However, producers’ profitability remains under pressure due to international competition with Western countries that subsidise input costs. 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.”

Agricultural businesses’ focus on black economic empowerment is in general positive, with the pressure to transform increasingly arising from the agricultural value chain. The vast majority of participants have 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.

Agriculture is and remains the life blood of the country’s economy; in fact, along with primary food processing, it is one of the largest suppliers of job opportunities worldwide.