Higher fuel price will hit farmers hardest

THE looming fuel price increase this week could have a devastating effect on the Eastern Cape farming industry, with the man in the street the second biggest loser.

“The middlemen, for example supermarkets, have all the power,” agricultural economist Johann Bornman said.

“They determine both the price at which they buy goods from farmers, as well as the price at which they sell those goods to the public.

“You would expect their prices to be in sync with the expenses of farmers, keeping in mind all the challenges the agriculture sector faces.

“However, this is not always the case.

“Supermarkets tell consumers prices go up because there is a drought or because of fuel price increases.

“What they don’t tell the public is that they buy goods at a lower price [from the farmers] due to the same reasons.

“So they decrease their expenses, while increasing their income – the exact opposite of the farmers’ dynamic.”

Petrol and diesel prices are expected to increase by 30 cents a litre and 41c/l respectively on Wednesday.

This comes after petrol jumped by 67c/l and diesel by 44c/l last month.

For farmers, the higher fuel costs will affect the running costs of all their vehicles and production equipment.

The higher production costs will eventually be felt by consumers.

Meanwhile, the primary buyers – like abattoirs, supermarkets, produce markets and others – will expect to pay lower prices for the farm products as they also feel the pinch of the fuel price increase.

“It goes without saying that higher fuel prices will have a dramatic impact on all farmers’ income,” Agri Eastern Cape president Doug Stern said.

“Nearly all farming activities require fuel – livestock, feed, crops, fruit, all are transported on trucks.

“And grains are harvested by vehicles that run on fuel.

“This will have a major impact on spending and farmers’ cash flow.

“In addition, farmers are not price-makers, we are price-takers. We do not set the prices for our goods, the buyers do.

“So when supermarkets feel the impact of higher fuel prices, they need to save money and pay less for the goods they buy from us.

“So besides an increase in our expenses, we are also expecting a drop in our income.”

Sundays River Citrus Company managing director Hannes de Waal said citrus farmers, much like the entire Eastern Cape agricultural sector, were trying to rebuild from a very weak base while fielding one setback

after another. “The entire province is reeling from the drought that is still far from over,” he said.

“Added to that, citrus faced record losses from fruit just dropping off the trees this season.

“The entire agriculture sector is in bad shape – and now we get hit with fuel price increases in two consecutive months.”

De Waal said the citrus industry in the province was competing with other countries which had seen their economies strengthened when international oil prices fell, while South Africa’s shaky political climate had weakened its economy, adding to pressure on producers.

Red Meat Producers Organisation Eastern Cape chairman Francois du Toit said the only thing saving meat farmers at this stage was a relatively good buying price from traders.

“But despite the good prices, many farmers are forced to sell stock they were hoping to keep to rebuild herds they lost in the drought,” he said.

“This means the red meat industry’s recovery period is being pushed back further and further.

“Some guys will not be able to recover, so the outlook right now is not very positive.”

The game industry will also feel the pressure as operational costs will go through the roof.

Wildlife Ranching South Africa provincial chairman John Hurter said animal tracking, either for hunting, auction or relocation purposes, was very costly.

“Some tracking operations need helicopters, in addition to ground vehicles,” Hurter said.

“Keeping a chopper in the air costs a lot of fuel and finding some animals in the veld can take hours.

“Add to that the number of animals lost due to the drought, as well as hunters and game-viewers spending less money on the industry due to tough economic times, and you are looking at major losses and pressure on game ranchers.”

Meanwhile, Agri Eastern Cape’s Stern said many farmers would have to absorb the higher fuel prices along with all their other expenses.

However, over time, the financial pressure they were under could lead to job losses.

“The bottom line is that farmers cannot spend money they do not have,” Stern said.

“They have to start looking at cost-cutting measures and, unfortunately, one of the few places they can cut costs will be on labour.

“I do not want to sound like a defeatist, but a fuel price increase, along with other expenses, could have a knock-on effect and eventually lead to job losses.”