Dark clouds gather for one of South Africa’s biggest employers

South Africa’s agriculture sector remains under immense pressure from a difficult operating environment and elevated volatility in key markets. 

This was revealed by Zeder Investments in its interim results for the six months to the end of August 2024. 

Valued at over R3 billion on the JSE, Zeder is one of the country’s largest agribusiness investors and holds major stakes in Zaad and Pome Investments. 

Zaad is an investment holding company that operates in specialised agricultural inputs, with a focus on emerging markets and, in particular, Africa. 

Through acquisitions and organic growth, it has aggregated and developed businesses that own, develop, import and distribute a broad range of agricultural seeds and chemicals.

In the latest set of results, Zaad reported a 26.9% decrease in recurring earnings to R160 million and was heavily impacted by the El Niño weather pattern. 

Unfavourable weather resulted in a below-average sunflower yield, with the company’s diversification into soya, wheat, and canola offsetting some of the impact. 

Pome Investments, another investment holding company, also saw recurring earnings decline to R26 million from R30 million in the same period last year. 

This company was negatively impacted by the volatility of weather patterns in the Western Cape, negatively impacting pome production and processing. 

The company also disposed of various assets during the six-month period. 

It sold individual assets held by Pome Investments, including Capespan Agri, which consisted of three primary farming production units and a fruit packhouse in Paarl. The company also sold Misty Cliffs, a smaller primary farming production unit. 

The total disposal consideration for the aforementioned transactions amounts to R713 million, which amounted to R621 million for Zeder’s 87.1% interest. 

Overall, Zeder’s headline earnings swung into a loss of R63 million for the six-month period. 

Dark clouds gather

While the company’s overall performance was poor, what would be more concerning is its outlook for the agricultural sector in South Africa. 

This sector is vital for employment in the country, able to rapidly absorb low-skilled labour and has masked negative underlying trends in the labour market through its strong performance in recent years. 

However, this appears to be coming to an end as the sector comes under increasing pressure. Its prospects are also clouded by logistical inefficiencies, animal diseases, and climate-related challenges.

The sector’s long-term outlook remains precarious despite production growing 13.5% in early 2024.

The environment in which Zeder operates remained relatively constrained during the period under review, mainly due to volatile weather patterns and lower soft commodity prices, the company said. 

After a sharp decline in the Agbiz Agribusinesses Confidence Index during the second quarter of 2024, the index has subsequently recovered by 10 points to 48 points. 

The improvement can be attributed to the renewed optimism around the formation of the Government of National Unity, but it remains below the neutral point mark. 

South African agribusiness, in general, remains downbeat about the business environment. The recent El Niño weather pattern led to drought conditions, which were devastating to the summer grains and oilseed regions. 

In addition, geopolitical tensions, persistent port inefficiencies, poor rail and road infrastructure, worsening municipal service delivery, and uncertainty about sustained energy availability are factors driving the sentiment. 

Zeder anticipates continuing uncertainty and volatility in the markets in which it operates in the short and medium term. Despite these challenges, Zeder remains well-positioned with a stable balance sheet and cash resources.

PwC estimates that by 2035, nearly a quarter of maize production and over a third of wheat production will be at risk due to rising temperatures and heat stress, further threatening food security and the agricultural workforce.