Drop in oil prices sparks hopes of cheaper fertiliser

South African farmers may find a glimmer of relief amid global economic uncertainty, as falling oil prices raise hopes for reduced fertiliser costs. However, experts caution that the international trade landscape remains fragile and could reverse any short-term gains.

Price tags on fertilisers like urea and ammonium nitrate go up when oil and gas prices rise. This is because these fertilisers are made using fossil fuels or natural gas, explains Buhle Dube, trade agricultural economist at the National Agricultural Marketing Council (NAMC).

“Thus, reduced oil prices can ordinarily lead to cheaper fertiliser production, potentially lowering fertiliser prices,” Dube says, adding that it is good news for grain and fruit farmers who rely on fertilisers for good yields.

Farmer optimism

KwaZulu-Natal macadamia farmer Siphelele Vumisa is also hoping for a break in fertiliser prices. He has witnessed firsthand how quickly global turmoil can push up fertiliser costs.

When he started planting, Vumisa used a 9:15 fertiliser blend for coastal macadamia farms. The blend had key microelements for local soils, and back then, a bag cost R650.

Then the Ukraine war hit, fertiliser prices doubled fast, leaving Vumisa paying twice as much – R1 200 to be exact.

“Most of the commercial farmers bought up all the fertiliser at local cooperatives, leaving nothing for the rest of us. It was a difficult period,” Vumisa said.

The price surge affected his overall farm planning, forcing him to reassess how and when he applied inputs. “With all the trade wars, it is hard to say what is happening, but I hope it does come down,” said Vumisa.

What’s driving oil prices down?

According to Dube, the recent drop in oil prices is the result of multiple global dynamics.

“Some of them include the gradual increase in oil production by the Organisation of Petroleum Exporting Countries (Opec+) as well as the escalation of trade tensions between the US and China,” he said.

These geopolitical tensions have slowed global trade activity, reducing oil demand and, by extension, prices.

Dube said if weaker demand continues to have a greater impact than supply disruptions, oil prices are likely to stay low. Between 15 January and the end of March, crude oil prices dropped from a peak of $82 per barrel to $75, even though there was a short period when global demand exceeded supply.

This decline was primarily influenced by negative market sentiment and concerns about global economic growth, which dampened expectations for future price increases.

Trade disruptions remain a threat

Despite the potential for cost relief, Dube warned that fertiliser supply chains remain vulnerable to international trade shocks. This volatility means that even if oil prices fall, fertiliser costs could still spike.

“This can lead to a sharp and rapid increase in fertiliser prices, despite oil prices decreasing. South African farmers can be cautiously optimistic to expect lower oil prices to culminate in lowered fertiliser prices,” Dube said, advising that farmers remain alert to market fluctuations.

Orchard production manager in the Western Cape, Nqaba Mfaxa, explained that fertiliser application can significantly impact his orchard productivity, often resulting in visible differences in growth and yield.

“Fertiliser also improves soil health. As we all know that it is important to have healthy soil so that your roots can be able to get the proper nutrients for proper growth and enhancement of the crop that you have.

“It is very vital for one to use a fertiliser, and it just helps to improve the crop health in general,” he said.

Aware of how oil markets affect fertiliser prices, Mfaxa is hopeful that farmers may soon benefit from falling costs.

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