While debates on how much interest rates will remain elevated are ongoing in global markets, higher interest rates certainly impact investment decisions. In the past two years, Capex had a smaller share in the sales of agricultural producers, averaging only 3.3%, according to the latest analysis by the BBA analytical team.
Luka Popović, the CEO of Delta Agrar, says that Agrar is a large ship that is not easily slowed down. “As interest rates have started to rise, we must complete our investment cycles. We are investing in orchards, further processing levels, and improving smart agriculture. What we definitely see in the coming period is that we will be much more cautious when the investment cycles that have started are completed, and we will look to undertake those new major investments from 2025 when we expect interest rates to decrease,” he stated.
He adds that inflation and rising interest rates have contributed to the slowdown in demand for agricultural products.
Despite the complex post-COVID macroeconomic environment, companies in the sector have managed to maintain a stable course, evident in sales growth, improved profitability, and higher margins. However, given the inventory levels and the trend of declining grain prices, our analysts do not expect the profitability growth to continue in 2023.
When it comes to 2021 and 2022, the sector has seen an increase in sales. Luka Popović mentions that it’s not easy to determine whether it’s just an item related to the price increases we’ve experienced due to the crisis in Ukraine or the quantities themselves. “Of course, we had the greatest impact from the rise in fertilizer, corn, and wheat prices. However, when we look at other business segments like livestock and fruit growing, prices didn’t rise drastically, so we had to focus on quantities to achieve the results we had in the end.”
During these years, profitability has also increased. Popović states that, in their case, agro-distribution, namely trading in seeds, plant protection products, and machinery, was the most profitable business segment. “Also, there’s fertilizer, trading in commodities—these were items that exceeded expectations in 2022.”
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