Rising global inflation and interest rate increases are falling hard on Mzansi’s agriculture and agribusiness sectors. According to agricultural economist Wandile Sihlobo, this ultimately means that in the coming months, farmers will be forced to cut costs even more than has already been the case.
The rise in interest rates, Sihlobo said, comes at a tricky time for the farming sector, where input costs such as fertiliser and animal feed remain elevated and are likely to stay at a higher level for some time.
The increases in input costs are partly the result of the Russia-Ukraine war, which has limited fertiliser production and exports from Russia.
According to Sihlobo supply constraints in China and Chinese authorities’ move to halt the exporting of fertilisers to ensure the supply of the domestic chemical fertiliser market, have also contributed to higher input prices.
“It is for this reason that we believe that prices could remain elevated for some time. In March 2022, which was a critical month for the winter crop farmers in South Africa, domestic fertiliser prices were up by over 70% year-on-year (y/y). We saw a similar price trend in agrochemicals prices,” Sihlobo said.
Inflation of costs for agribusinesses
While it is tough for farmers to escape rising input costs as they require fertilisers and agrochemicals to attain optimal yields, Agbiz is encouraged by the winter crop farmers, who intend to increase the area plantings in the 2022-2023 production season by 6% y/y.
These intentions can only be confirmed in July when the crop estimates committee releases its winter crop preliminary plantings data. Summer crop farmers are expected to table their intentions to plant for the 2022-2023 production in October.
Sihlobo cautioned that other field crops, such as sugar cane, will require an even higher fertiliser usage during the replanting following the devastating floods in KwaZulu-Natal.
“For the horticultural industry, disrupting important markets such as the Black Sea region, important for citrus and deciduous fruits, implies that profitability will be negatively affected.
It will not be an easy task to reroute fruits to other markets, particularly citrus whose export season starts this month,” he said.
The logistical challenges at ports exacerbated by the recent floods in KwaZulu-Natal are an additional cost to the agribusiness, Sihlobo pointed out. These difficulties, he said, also apply to the wine industry, livestock, and poultry industries.
Meanwhile, foot-and-mouth disease has resulted in a temporary ban of South Africa’s wool, beef, and livestock products to most export markets. “These challenges come at a time when farmers face higher input costs, mainly for maize and soybeans,” he said.
Prioritise infrastructure improvements
If matters are not already at their worst, issues of poor municipal service delivery and lack of maintenance of network industries such as roads, ports, water and electricity, is proving to be a real headache for farmers and agribusinesses.
The current conditions, Sihlobo said, mean that agribusinesses and farmers have to divert some of their resources to activities that the state would ordinarily have done.
“In the environment of constrained financial resources… there is limited flexibility for businesses to embark on such cost-intensive tasks.”
While South Africa has no control over input costs rising due to external factors, to support the sector and ensure that it continues to play a notable role in the economy, Agbiz believes the government departments responsible for the network industries should prioritise the infrastructure improvements along with Infrastructure South Africa.
These improvements would also be beneficial to the tourism, mining and manufacturing sectors, Agbiz said.
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