This reflects a moderation of sales after excellent sales figures in 2022. But higher interest rates and a poor 2023-24 summer crop add pressure to farmers' finances
I have previously stated on these pages that South Africa’s agricultural machinery sales will probably be weak this year. The recent data continue to support this view. For example, in March, tractor sales were down 26% year-on-year, with 498 units sold. The combine harvester sales were down 33% year-on-year, with 26 units sold.
This moderation of the South African agricultural machinery sales should not worry us much. It primarily reflects the normalisation of sales after a few years of robust activity.
To remind us of such excellent years, consider the 2022 South African tractor sales: they amounted to 9,181 units, up 17% year-on-year. This was not an issue of a base effect. The previous year’s sales were also solid. This was the highest annual sales figure in the past 40 years.
Farmers also went all out for combine harvesters, purchasing about 373 units in 2022, up 38% from the previous year. As with the tractors, the 2021 combine harvesters sales were also excellent. The annual jump in sales in 2022 reflected improved optimism among farmers. Notably, this was the highest yearly combine harvester sales figure since 1985.
The following year, 2023, maintained a somewhat excellent sales activity. The 2023 tractor sales were down only marginally from the previous year, while the combine harvester sales held the last year’s momentum.
But what was driving the sales in 2021 through to 2023?
These generally strong agricultural machinery sales these past few years were primarily based on ample grains and oilseed harvests when prices were also favourable. South Africa experienced a few years of La Nina rainfall, supporting grain and oilseed production. In times of elevated prices because of global factors, the improvement in yields benefited South African farmers. Some of the windfall was spent on machinery and upgrades of farm implements.
The music can’t go on forever. Thus, we now think that agricultural machinery sales are on the normalisation path this year.
Also worth noting is that although in the past, agricultural machinery sales would be read as one of the early indicators of the health of the farming sector, this time around, the sales should be read differently for the reasons we stated above. Admittedly, the sector faces difficulties linked to the recent dry spell associated with the El Niño cycle that led to major grains and oilseed crop losses.
At the end of March this year, the Crop Estimates Committee placed South Africa’s 2023-24 total grain and oilseeds production at 15,8 million tonnes, which is 21% lower than last season’s harvest.
But, on the point of sales, this year’s overall decline in production prospects is primarily a result of poor yields, not a reduction in the area planted, which was more land than in the 2022-23 season.
The winter crop planting season is set to start at the end of this month. Still, the weak agricultural machinery sales data should not necessarily indicate what is to come when the Crop Estimates Committee releases the farmers’ intentions to plant data on 25 April.
In addition to the general normalisation of agricultural machinery sales, we think the relatively higher interest rates have added pressure to farmers’ finances. Also worth noting is that while other input cost prices, such as fertiliser and agrochemicals, softened since 2023, the prices are still generally well above the pre-Covid levels, thus adding pressure on farmers’ finances.
Furthermore, the poor summer crop harvest of the 2023-24 production season will also be a constraining factor in the months ahead, because farmers’ finances will be under pressure.
Wandile Sihlobo is the chief economist at the Agricultural Business Chamber of South Africa and a senior fellow in Stellenbosch University’s Department of Agricultural Economics. His latest book is A Country of Two Agricultures.
