The drop in fuel prices that came into effect on Wednesday as a result of lower Brent crude oil prices, on the back of the fast-spreading coronavirus (Covid-19) outbreak across the world, will provide some relief for farmers.
Petrol and diesel prices declined 19c/ℓ and 55c/ℓ respectively. According to Paul Makube, senior agricultural economist at FNB Agribusiness, the cumulative decreases in petrol and diesel prices would help limit the impact of the expected fuel levy increase of 25c/ℓ in April.
“This will likely contribute to positive cash flow, lower cost of production and improved profitability, as petrol and diesel make up a significant amount of farm input costs.”
He added that the lower fuel prices came at a critical time for farmers as they started to stock up on diesel ahead of the harvesting period.
“Moreover, farmers are increasingly using petrol and diesel for backup generators in light of the current power supply challenges.”
As 70% of the country’s food was transported by road, the decrease would likely also have a positive impact on food inflation, Makube said.
“This may possibly lead to further interest rate cuts later on in the year, given the improved inflation expectations.”
Dr Requier Wait, head of economics and trade at Agri SA, added that according to official statistics, the agriculture sector spent approximately
R13,1 billion on fuel in 2018/2019.
“Lower fuel prices are always welcome and can help lower the cash flow pressure from fuel purchases,” he said.
Responding to the fuel levy increase of 25c/ℓ, of which 16c/ℓ was earmarked for the general fuel levy and 9c/ℓ for the Road Accident Fund, he said: “Luckily, the diesel refund system provides some relief for farmers, who will be able to claim R3,49/ℓ on 80% of their eligible use”.
He added that the weakening of the rand against major currencies and possible further declines in crude oil prices would impact the outlook for fuel prices.
“The reaction of the Organization of the Petroleum Exporting Countries (OPEC) will also play a role, where possible production cuts to counter the impact of Covid-19 are being discussed.”
