The latest data from the South African Agriculture Machinery Association (SAAMA) indicates a significant drop in agricultural machinery sales, reflecting the broader economic difficulties and challenging operating conditions. This downturn marks a correction in the market following a period of impressive growth in the three years preceding 2023, driven by favourable harvests and strong commodity prices.
In the years 2020, 2021, and 2022, total agricultural machinery sales surged by 11%, 32%, and 21% year-on-year (y/y) respectively, reaching 5,987 units, 7,908 units, and 9,556 units. The 2022 sales figures were 34% higher than both the five-year and ten-year averages. During this period, the agriculture sector thrived, with the gross producer value for field crops such as maize, wheat, and soybeans increasing by 20.9%, 29.1%, and 10.9% y/y, amounting to R77.92 billion, R100.56 billion, and R111.55 billion for the 2019/20, 2020/21, and 2021/22 seasons, according to the 2023 Abstracts of Agriculture Statistics from the Department of Agriculture, Land Reform, and Rural Development (DALRRAD).
However, the trend reversed modestly in 2023, with total agricultural machinery sales declining by 7% y/y to 8,885 units. Despite this decline, sales were still 18% and 24% higher than the five-year and ten-year averages, respectively.
For the first four months of 2024, total machinery sales fell by 27% y/y to 1,945 units, according to the latest SAAMA data. Combine harvester sales experienced the largest decrease at 60.6% y/y, while tractor sales dropped by 24.6% y/y.
Although South Africa’s economy avoided a technical recession by growing 0.6% in 2023, the agriculture sector faced a downturn, with sector GDP falling by 9.7% quarter-on-quarter (q/q) in Q4 2023 and an annual decline of 12.2% y/y in gross value added. This decline was unexpected given the excellent summer crop harvests in 2023, which saw maize production reach 16.4 million tons (+6% y/y), soybeans hit a record 2.8 million tons, and sugar output rise by 3% y/y to 18.5 million tons.
The robust crop production and high agricultural commodity prices from previous years had prompted farmers to upgrade their machinery fleets, resulting in strong sales increases for tractors and combine harvesters by 11%, 32%, and 21% y/y in 2020, 2021, and 2022, respectively.
However, the market correction in 2023, coupled with rising interest rates, reversed this trend. South Africa’s interest rates have surged by 4.8 percentage points since November 2021, reaching an 18-year high of 8.25%.
Agricultural machinery sales are expected to remain subdued in 2024 due to lower agricultural output, affected by an El Niño-induced midsummer drought. The National Crop Estimates Committee has adjusted its maize harvest estimate upward by 1% to 13.39 million tons, though this remains an 18.5% y/y decrease. Sunflower and soybean harvests are also projected to decline by 14.6% and 34.5% y/y, respectively, to 615,000 tons and 1.81 million tons.
For winter crops, the first planting intentions indicate a 2.6% y/y decrease to 798,800 hectares, with wheat accounting for 65% of the total. Oats are expected to see the largest reduction in planting area, down 25.5% y/y. The total wheat area is forecast to decrease by 3.3% y/y to 520,200 hectares, with significant declines in the Free State, Eastern Cape, and Limpopo provinces.
Despite these challenges, there are positive signs for the future. Forecasts indicate a transition from El Niño to La Niña, which is favourable for the 2024/25 crop season. Combined with strong grain and oilseed prices and potentially lower input costs, particularly for fertilizers, producers may increase plantings in the next season. Additionally, South Africa’s consumer inflation is trending downward within the South African Reserve Bank’s target range, and market expectations suggest potential interest rate cuts starting in the second half of 2024 into 2025. These factors could positively impact agricultural machinery sales in the coming year.
