The agricultural sector, which grew 27.8% in the first quarter, is set to lose up to R1bn in input costs due to the fuel price increase which industry leaders say will have a knock-on effect on food prices.
The mineral resources & energy department announced on Monday that petrol will increase by 5c and diesel by 45c at midnight on Wednesday, due to the dollar/rand exchange rate and an increase in crude oil price.
The labour-intensive agricultural sector, which contributes about 3% to GDP and is responsible for about 900,000 jobs, relies heavily on machinery that runs on diesel fuel.
SA’s agricultural sector has escaped some of the strictest Covid-19 lockdown regulations as it is an essential service. The only exception is barley industry, which has been hit hard by the lockdown measures on the sale of alcohol.
Corné Louw, senior economist at Grain SA, said as grain farmers, especially maize farmers, are busy harvesting, the increase in the diesel price will make the “harvesting and transport[ation] of maize more expensive”.
“Grain farmers in the summer rainfall region will also start preparing their soil, which take up lots of diesel and would therefore be negatively affected,” said Louw.
Standard Bank agribusiness head, Nico Groenewald, said the increase would “obviously impact on the farmers’ profitability”.
“Farmers are already sitting with a cost squeeze. The increase will result in R1bn additional costs from an input costs perspective,” said Groenewald.
The increase comes at a time when farmers were on a “recovery phase” as the sector grew 27.8% in the first quarter of the year, “on the backdrop of two years’ contraction”.
“Agriculture is one of the industries that stood its ground during the pandemic. It was not closed down, though the regulations did impact on the value chain processes [as some subsectors such as wine, wool and mohair, did not operate].”
Nakana Masoka, secretary-general of the African Farmers Association of SA (Afasa), which represents about 13,000 emerging farmers in SA, said while smallholder farmers had been negatively affected by the pandemic, “the fuel price increase is going to make matters worse”.
“At the moment we are still harvesting our summer crops. The increase will eat up on whatever profits we would have made. It’s going to be very difficult for small-scale farmers to now have sufficient resources to partake in the new planting season in September/October,” said Masoka.
However, Wandile Sihlobo, head of agribusiness research at the Agricultural Business Chamber (Agbiz), said this is a relatively quiet period in agriculture “with slightly lower fuel consumption”.
“The harvest process of summer grains and oilseeds is at completion stages. Also, most horticulture crops have completed the harvest process. The increase in fuel consumption will mainly be around October when the summer crop plantings start,” Sihlobo added.
FNB agribusiness senior agricultural economist Dawie Muree said the fuel price increase was “tremendous” and risked placing farmers’ profits “under immense pressure”.
“Farmers are price takers so they need to absorb price increases. The increase will have a major impact in the western parts of the country as they are still in harvest season for summer grain crops,” said Muree.
He said diesel trucks were used to transport food products from farms to factories and then to retailers. “Therefore, any price increase in fuel will filter through to food prices over the next three to six months,” said Muree.
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