PETROL and diesel prices could rise by as much as R3 a litre when the fuel tax returns to normal in June.
Treasury cut the fuel levy in April by R1.50 a litre to cushion petrol price increases as oil prices hit historic highs in part due to the Russian-Ukrainian war and trade disruptions.
OPEC’s failure to reach a deal to increase oil production is another factor causing tight oil supplies and driving up prices.
Afri SA’s executive director Christo van der Rheede warns that rapidly rising production costs are making it nearly impossible for many farmers to produce food sustainably.
SA farmers squeezed by rocketing production costs
For crop producers prices of fertilisers and chemicals soared by more than 50 percent during the 2021-22 planting season, and prices are expected to remain high throughout the year and into 2023.
Depreciation in the Rand against the US dollar is likely to push prices of fertilisers, fuel and chemicals even higher due to South Africa’s reliance on imports, which will further squeeze producer margins.
“Grain producers and logistics companies, in particular, will feel the pain of a fuel price increase as close to 80 percent of grain is transported by road,” says Paul Makube, senior agricultural economist at FNB Agri-Business.
Prepare for bigger interest rate hikes
While SA farming has enjoyed an outstanding two years of soaring profits, the country’s farm debt has been ballooning.
In the last six years, farm debt in South Africa has grown by roughly R68 billion to reach R187 billion in 2019, according to figures from the Department of Agriculture, Land Reform and Rural Development.
Many third-generation South African farmers are still repaying long-term loans as well as using production loans and other types of debt capital.
Analysts are forecasting that interest rates hikes will be aggressive going forward following a second increase of 25 basis points in March. The Reserve Bank has signaled it will probably continue to lift the benchmark by 25 basis points at the next three meetings, in part to counter inflationary pressures stemming from the Russia-Ukraine war, according to Bloomberg
“This means farmers will face higher debt serving costs in a record high input cost environment,” says Paul Makube.
The biggest threat to farmers and food security is rising debt, and farmers need affordable credit to farm successfully and to ensure South Africa does not experience food shortages in the future.
