This April, a significant fuel price hike is expected to add further pressure on food prices, warns National Agricultural Marketing Council economist Thabile Nkunjana.
Fuel prices are adjusted monthly based on import parity prices, and the imminent spike is due to a global increase in oil prices. The weakening Rand against the dollar is also not helpful, says Nkunjana.
“This means domestic fuel prices are set based on the cost of importing oil or fuel into the country. South Africa is a net-importer for oil and international oil price rates have a direct impact on domestic prices.
“In recent weeks, a surge increase in international oil prices has been observed across the globe, especially from the North American region due to higher demand linked to extreme winter conditions.”
What this means for agriculture
While motorists have become used to fuel price increase every now and then, Nkunjana says the agricultural industry is highly responsive to fuel price changes. He adds that a litre of petrol is estimated to increase by at least R1,16 to R17,48. A litre for diesel will increase by R0,92 to R15,04.
This means a litre of petrol will increase, on average, by 7% when compared to March 2021 and increase by 25% when compared to a year ago.
“For example, while fuel is used directly used in agricultural production, other factors of production represent a significant indirect use of fuel.
“A litre for diesel will increase by 6% when compared to March 2021, and by 18% when compared to a year ago. Additionally, the increase of 15% for fuel levy and 11% for the Road Accident Fund is likely to keep fuel prices elevated going forward,” Nkunjana observes.
Price hikes puts vulnerable at risk
According to the economist, higher fuel prices will increase the cost of production and transportation of food which is then transmitted to consumers.
Nkunjana notes that prices of staple foods, including maize meal, wheat, and its products such as bread, and oil seeds stood to be increased.
“The majority of these commodities in South Africa are transported largely by road and are thus sensitive to fuel price changes. Because food prices both domestically and across the global market remain elevated since November 2020, the poor and vulnerable consumers across South Africa are going to feel the fuel prices hikes.
However, the Consumer Price Index (CPI) data for March 2021 is yet to be published to make conclusive decision about food prices.
Nkunjana adds, “It is likely that food prices will remain high due to issues such as the persistence in load shedding which is straining the country’s economic recovery accompanied by a stagnant Covid-19 vaccine rollout process.
“The support grant provided by the state to the Covid-19 affected population does assist consumers, and it will be even more important in the coming weeks in light of these developments going forward. A possible extension might be needed in the near-term to further assist vulnerable consumers.”