THE recent hefty hike in fuel costs will come as a “double whammy” to the South African agricultural sector which is still struggling to recover from the effects of the recent prolonged drought, an economist has warned.
On June 6 petrol (95 ULP & LRP) increased by 82 cents a litre and diesel by 85 and 87 cents a litre for the two grades (0.05% and 0.005% sulphur) respectively. This pushed 95 ULP petrol to record highs of R15.79 a litre and R15.20 a litre for the inland and the coastal areas respectively. The two grades of diesel now cost R14.19/ l and R13.70/ l respectively at wholesale level for the inland and the coastal areas.
According to Paul Makube, Senior Agricultural economist at FNB Agri-Business, a R1 per litre increase in fuel costs equates to a R1 billion rand increase in input costs per year to the agriculture sector.
These costs manifest differently across the various industries from planting, harvesting, distribution and packaging, he said.
“The higher crude oil price is a double whammy due to the direct influence on the fuel price and the indirect influence on oil derivatives such as fertilizer, pesticides and herbicides all of which are inputs in crop farming.
“The summer crop season has ended, and harvesting is in full swing with a total of 3.85 million hectares and an additional 500,500 hectares of wheat is currently being planted in the Western Cape.”
He said these factors combined could easily translate into additional cost of over R153 million.
“Bear in mind that the distribution of agricultural produce is dominated by road transport, so the net effect of fuel increases is reduced profit margins for producers. Logistics companies in the agriculture value chain will also be hard hit, for example, over 80% of grain is transported by road.”
These costs will eventually be passed on to the consumer up the value chain, he said.
“For low income households, transport costs account for a large portion of household expenditure and the consequence of a sustained fuel price increases will further erode disposable income and cause financial stress.
“This will force a change in spending patterns with a cut in spending on luxury items and frequency of visits to eateries. As businesses face additional costs in in transport, packaging and distribution, they eventually pass on to the consumer which ultimately feeds into rising inflation.”