Fuel price increase to hit farmers as crude oil surges

Farmers who are anticipating a bumper crop and preparing their land to plant for the winter season will be hard hit by the ever rising fuel price. And it seems the international crude oil price is continuing on its upward trajectory which does not bode well for the future fuel price, FNB Agri-business senior economist, Paul Makube, said this week.

Makube said the surge in the international crude oil price had already led to the March fuel price hikes with the prices of diesel and petrol increasing by 66 and 57 cents per litre respectively. The 15 cents and 11 cents per litre increase in the general fuel levy and the Road Accident Fund levy announced in the 2021 National Budget had exacerbated the latest fuel price hike, he said.

“In just over a month’s time, farmers will be preparing themselves for the onset of the winter crop planting season. Farmers planted just over 751,000 hectares under wheat, barley, canola and oats and this is likely to increase for 2021 given the relatively favourable seasonal outlook,” Makube said.

“Although on-farm agricultural activity is currently at a seasonal low except for distribution of produce, harvesting of record summer grains is around the corner,” he said.

FNB Agri-business senior economist, Paul Makube

Makube said this would lead to an increase in the demand and consumption of fuel in the medium term, despite the higher fuel price.

“The recent uptrend in crude oil prices does not bode well for producers as production costs are likely to escalate,” Makube said.

Fuel price rise on back of oil surge

Brent crude oil prices recently breached US$60 bbl and peaked at US$65/bbl in February, which is 19% and 18% higher relative to January 2021 and February 2020 averages respectively.

“Activity in the agriculture space is expected to increase in the medium term and with upside risks to crude oil prices not dissipating, cost of production across the value chains that manifest differently from planting, harvesting, distribution and packaging are likely to escalate,” Makube said,

“Grain producers and logistics companies in the agriculture value chain will feel the pain as closer to 80% of grain is transported by road. Livestock and horticulture will also be affected in terms of distribution across the country and for exports,” he said.

FNB Agri-business senior economist, Paul Makube

Apart from the direct fuel price hikes, added to farmers’ woes would be an increase in the price of derivatives of crude oil processing such as fertiliser, herbicides and pesticides, which are likely to increase  if the uptrend persists. 

“Hopefully, the rand will maintain the current momentum and strengthen to limit further fuel price increases,” Makube said.