‘Fuel price hike will impact on inflation and spending’

THE rise in fuel costs in March and April will impact on Kwazulunatal (KZN) farmers, road haulage companies and consumers, resulting in increased inflation and reduced spending on other goods and services.

Dawie Maree, the head of information and Marketing at FNB Agribusiness, said the March increase of 74 cents a litre for petrol and around 91c a litre for diesel would have a severe impact on the cash flow of farmers, as they would have to spend the money now to plough their fields, while they would only receive income once the summer crops are harvested between May and July.

“Fuel and diesel are commonly used for tillage, harvesting, machinery and transportation, making them a critical component for the entire agricultural value chain,” he said. “From a farm producer level, we are currently experiencing a late season whereby farmers are still using a lot of diesel. This follows the Budget speech announcement that the fuel levy will increase by 30c/litre for diesel from April 1, which adds to the woes of producers,” he added.

As 70% of South Africa’s food is transported by road, Maree noted that the increase in the diesel price would have a negative impact on food inflation and the disposable income of consumers who are already struggling to make ends meet.

Wandile Sihlobo, the economist at the Agricultural Business Council, expected food inflation to average 5 percent in 2019 from a food inflation rate of 35 percent year-onyear (y/y) in December.

“We think going forward there will be upside pressures which will emanate from a general increase in agricultural commodity prices, albeit having slowed somewhat from levels seen at the start of the year.

The increases will, however, not be steep due to expectations of a decline in meat prices,” he said.

He noted that the deceleration in meat price inflation was partly driven by an increase in slaughtering activity, specifically sheep and cattle sub-sectors. Statistics South Africa data showed that meat inflation slipped to 0.85 percent y/y in

January from 1.8% y/y in December, 2.85 percent y/y in November and a recent peak of 15.65 percent y/y in September 2017. According to Sihlobo, South African farmers slaughtered 258 697 head of cattle in December 2018, up by 125 percent from the previous month and 85 percent from the corresponding period last year. In addition, about 547 952 head of sheep were slaughtered, up by 235 percent from the previous month.

“Moreover, meat prices, which account for more than a third of the food inflation basket, are likely to be under pressure in the near term. This is due to expectations of an increase in domestic meat supplies as the recent outbreak of foot-andmouth disease has led to a ban on South African red meat in key export markets,” he added.