Picture: ISTOCK
Picture: ISTOCK

The agriculture sector, which is battling drought conditions and more recently the global effects of the coronavirus outbreak, has welcomed the drop in fuel prices, saying it will have a positive effect on food inflation and will provide relief for farmers ahead of the harvesting period.

On Tuesday, mineral resources and energy minister Gwede Mantashe announced that the price of petrol and diesel will decrease 19c/l and 54c/l respectively, effective from Wednesday.

Mantashe cited lower oil prices for the price drop induced by the continuous spread of the coronavirus, known as Covid-19, which has disrupted global trade and hammered financial markets.

“This has added to investor and traveller concerns and as a result affected the demand for crude oil,” said Mantashe.

Business Day had reported that SA’s agricultural sector could lose as much as R39.23bn in export revenue due to the coronavirus outbreak, as China has temporarily closed its manufacturing hubs and restrictions on human movements could negatively affect demand from local firms.

China, with 8% of global agricultural imports, is the second-biggest importer in the world.

FNB agribusiness senior agricultural economist Paul Makube said the drop in fuel prices will provide relief for farmers, as it will be  likely to 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”.

The drop, he said, comes at a critical time as farmers start stocking up on diesel ahead of the harvesting period, and that farmers are increasingly using petrol and diesel for backup generators owing to Eskom’s load-shedding.

“Fuel and diesel are also commonly used for tillage, machinery and transportation, making them a critical component for both small-scale and commercial farmers, as well as the entire agricultural value chain,” Makube said.

“Given that 70% of SA’s food is transported by road, the decrease in the petrol and diesel price is likely to have a positive effect on food inflation, easing pressure on consumers who are already struggling to make ends meet.”

The cost of food in SA increased 3.7% in January 2020 compared with the same month in the previous year, according to Trading Economics, which expect it to be 3% by the end of the first quarter of 2020 and 4% by year-end.

AgriSA deputy executive director Christo van der Rheede said this was welcome news for farmers.

“We welcome any decrease that can lower our operational costs, we are very happy about this, and we hope it will be sustained.”

However, labour federation Cosatu said that while it welcomed the fuel price drop, it was still not enough because it was likely to be “repealed by the pending tax increase of 25c that will see 16c going to the general fuel levy and 9c to the Road Accident Fund”.

Cosatu spokesperson Sizwe Pamla said only a further reduction and “a steady drop” could give some respite to lower-income earners and poor households

“They are struggling to survive under these difficult economic conditions. Hopefully, this reduction will continue because workers are spending too much money travelling to work and they are sliding deeper and deeper into debt because of declining wages,” said Pamla.

“An extra decrease in the price of fuel will be able to boost the purchasing power of most South Africans and, hopefully, lift the economy and help it recover.”

mkentanel@businesslive.co.za

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