How exposed are foreign investors to the South African agriculture value chain? Or rather, what has been their relative shareholding over the past 12 months? A snap survey among investment professionals saw them answer in unison that surely foreign ownership has decreased.
And yet the opposite is happening.
This response is quite intuitive — South Africans are keenly aware of the severe policy uncertainty facing agriculture in the form of expropriation without compensation (EWC). Even though there are numerous signs that agriculture is doing quite well — for example, the double-digit growth rate for the sector by the end of 2017 — international finance is known to be risk-averse. A policy shift that has as much publicity and potential fall-out as EWC should, therefore, translate to foreign investors heading for the hills.
But in reality, the foreign shareholding of JSE-listed companies active in the agri value chain has increased over the past 12 months, although there is a noticeable hiccup around December 2017. Out of the sample of 23 companies active in the agri value chain such as food producers and companies whose primary customers are farmers, 13 had a higher foreign shareholding by close of April 2018 compared to May 2017.
The average of foreign shareholding across the 23 companies, indexed at 100 in May 2017 grows to 112 by April 2018 — in other words, a 12 percent growth. The JSE All Share Index, an indicator of value, also indexed at 100 in May and peaked at 112 January 208, but has slowed since then.
So why is this happening? Several theories abound, but the most credible is that foreign investors, for the most part, take a balanced view of the countries they are active in. South Africa is not compared to relatively stable economies with minimal policy risks, but rather comparable emerging economies that are also dealing with some fundamental issues.
Blood, sweat and tears have been shed from the farm to the processing facility to ensure that South Africans can enjoy quality products at a much more affordable price than many other countries.
So when South Africans are terrified by various risks, foreign investors are able to weigh those risks against what is happening in the rest of the world. This is not to say that policy risk can be ignored, or that it is a convenient excuse for conservative forces — it does play a role. What the data does not show, is how much more funds would've been invested if there were less policy risk in the form of EWC.
Ultimately, the data is encouraging and a recognition from a large portion of the world of South Africa's ability to manage and grow our agricultural value chain. Simultaneously, it is a warning not to take positive investor sentiment for granted, or more importantly, not to take the value chain for granted. EWC will hurt the agriculture value chain irreparably.
Blood, sweat and tears have been shed from the farm to the processing facility to ensure that South Africans can enjoy quality products at a much more affordable price than many other countries. In many ways, many South Africans live like kings, thanks to our strong agricultural sector. Let us work towards greater stability to attract further capital and unlock further growth for the sector.
Agri SA is thankful to VACO for their shareholder analysis on the sample of 23 JSE companies.
Pietman Roos is head of corporate affairs and communication for AgriSA.