Fuel Hike will add Pressure on Consumers, Agriculture Sector – FNB

Posted on June 5th, 2018
Biz News

Increases of up to 87 cents a litre in the prices of petrol and diesel will hurt South African consumers and the agriculture sector, a senior economist at First National Bank says.

From Wednesday,, the price of the 95 ULP grade of petrol will reach a record high of R15.79 a litre for inland areas and R15.20 a litre for those on the coast. The two grades of diesel will cost R14.19/litre and and R13.70/litre respectively at wholesale level for inland and coastal areas.

Estimates show that a R1 per litre increase in fuel costs equates to a R1 billion rand increase in input costs per year to the agriculture sector, said Paul Makube, a senior agricultural economist at FNB Agri-Business, noting that these costs manifested differently across the various industries from planting, harvesting, distribution and packaging.

“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 currently being planted in the Western Cape,” Makube said.

“This could easily translate into additional cost of over R153 million rand. 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.”

He said logistics companies in the agriculture value chain would also be hard hit, as over 80 percent of grain is transported by road. These costs would eventually be passed on to the consumer up the value chain, adding to the woes of households already facing higher transport costs.

For low income households in South Africa, transport costs account for a large portion of expenditure and Makube said sustained fuel price increases would further erode disposable income and cause financial stress.

“Nonetheless, we still expect the robust agriculture output for the 2017/18 season coupled with huge carryover grain stocks to continue to provide some cushion for consumers in the short to medium term,” he said.

“Reports that major crude oil producers such as Saudi Arabia and Russia will boost output should help exert downward pressure on oil prices and possibly halt further increases at the pump.”