The recent fuel levy increase will negatively impact the agricultural sector, which is under immense pressure to sustain the jobs it has created over the years, according to the National Agricultural Marketing Council (NAMC).
The NAMC communication manager, Mashao Mohale, said with the adjustment in the fuel levy, the government intends to raise an additional R20 billion in additional tax revenue for the 2025/26 fiscal framework.
He said that while this is regarded as a strategic alternative to an increase in value-added tax (VAT), the adjustment will impose adverse cost pressures on the agricultural sector.
“Fuel constitutes about 13% of variable input costs in primary production and agri-logistics, particularly in an industry characterised by spatial dispersion and reliance on road transport. The timing of the increase in fuel levy and the electricity tariff hikes curtails the benefit of concurrent global oil price reductions and a strengthening rand, thereby limiting the potential cost relief to producers.”
Ripple effect of fuel levy increase
Mohale explains, “The increase in fuel levy has a wide range of economic consequences that will significantly impact the agricultural sector, given the sector’s inherent reliance on energy-intensive activities. Furthermore, it serves as a catalyst, triggering a cascade of economic repercussions that spread across the agriculture sector through different convoluted paths.”
He added that although the agricultural sector benefits from a fuel rebate scheme that refunds a portion of the fuel levy on diesel used for agricultural purposes, a fuel levy increase would negatively affect the agriculture sector by raising input costs and transportation expenses.
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“The entire food value chain is more likely to be affected by the fuel levy increase. The farmworkers will significantly feel the impact of the fuel levy increase as their ability to commute daily to and from work on the farms will be affected by higher transportation costs, ultimately affecting efficiency and timely productivity.
“Fuel levies have a cascading effect in agriculture by raising costs for agricultural inputs, transportation, and machinery operations, while also straining rural household incomes and changing market dynamics. The market supply of commodities requiring fuel-intensive production is more likely to be affected as producers will curtail production or opt for less fuel-intensive practices,” Mohale said.
Interventions needed to support farmers
The fuel levy will also have significa ant impact on food availability and pricing, particularly for less-affordable households. Mohale said the prices customers pay for food are probably going to increase, and the marginalised agrarian households may find it more difficult to afford basic food items due to rising prices.
“To mitigate the adverse impacts of the recent increase in fuel levy on the agricultural sector, several interventions should be considered. Firstly, the government could expand and streamline the existing diesel fuel rebate system to ensure more inclusive access by smallholder and emerging farmers, who often lack the administrative capacity to claim these rebates.
“Secondly, investing in the development of rural transport infrastructure and promoting the use of alternative energy sources, such as solar-powered irrigation and electric farm machinery, could reduce the sector’s dependency on fossil fuels.”
Mohale said there is a need for collaborative engagement as per the Agriculture and Agro-processing Master Plan (AAMP) between the government, farmer organisations, and agribusiness stakeholders to design adaptive policies that mitigates the inflationary effects of fuel levies on food prices, ensuring food security for low-income households and the sustainability of the agricultural sector at large.
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