Finweek English Edition - - Economic Trends & Analysis - JO­HANN VAN ZYL

IT’S EX­PECTED that the agri­cul­tural in­dus­try’s terms of trade (the ex­tent that pro­ducer prices are re­lated to in­put costs) could fall to be­low 1 this year. Last year the fig­ure was 1,11 and in 2006 1,01. Even though South Africa’s gross farm­ing in­come in 2007 rose by 21,4% to R96,7bn – its high­est level yet – farm­ers are suf­fer­ing in­creas­ingly un­der the cost pres­sure of diesel, fer­tiliser and other farm­ing es­sen­tials.

Fuel prices es­pe­cially are prov­ing a ma­jor prob­lem for farm­ers: the agri­cul­tural in­dus­try reck­ons that ev­ery 1c in­crease in the price of diesel costs the in­dus­try at least an ex­tra R10m/year.

One of a farmer’s ma­jor ex­penses is fer­tiliser. Last year it was 11,3% of to­tal ex­penses, but the fig­ure has since risen to 46,3%. That will have a dra­matic im­pact on net farm­ing in­come this year.

The De­part­ment of Agri­cul­ture’s latest eco­nomic sur­vey of SA’s agri­cul­ture to end-De­cem­ber 2007 showed av­er­age in­put costs in­creased by 12,8% com­pared with only 5% over the pre­vi­ous year. If it hadn’t been for trac­tors and other agri­cul­tural equip­ment, which rose by only 0,4%, that in­crease would have been con­sid­er­ably higher.

The sit­u­a­tion is much worse this year: the fer­tiliser price, which cor­re­lates strongly with the fuel price, is al­ready 100% up on last year’s fig­ure. The oil price rose from about US$75/bar­rel at the be­gin­ning of Au­gust 2007 to around $140 and then fell to last week’s $118/ bar­rel – which is still 57% more than it was this time last year. Mean­while, av­er­age grain prices haven’t in­creased from what they were last year.

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