SA agriculture groups urge more fuel relief as IMF warns of global shock

South African agricultural groups on Tuesday welcomed the R3.0/litre cut to the fuel levy, but urged the government to take more measures as surging fuel and fertiliser costs threaten the sector and ultimately the country’s food security.

South Africans woke up on Wednesday to significantly higher fuel prices at the pump, but would have been paying more were it not for the temporary slashing of the fuel levy until 5 May.

“In most farming systems, fuel accounts for between 12% and 18% of production costs, making it a critical cost driver in periods of volatility. The relief measure will therefore help to ease immediate cost pressures and could play an important role in buffering against further food price inflation in the short term,” AgriSA and Agbiz said in a joint statement.

“In addition to fuel, other major inputs such as fertiliser, often accounting for up to 35% to 50% of production costs, are also under upward pressure due to global supply disruptions and geopolitical risks.”

Agriculture urges government steps

The government has signalled it is considering additional measures, and agricultural organisations have asked it to urgently consider the following:

• Greater flexibility in the fuel price adjustment mechanism, including more frequent reviews during periods of volatility;

• Greater transparency on the national stock levels of fuels;

• Consideration of a temporary reduction in the RAF levy; and

• Extending the diesel rebate for primary users to 100%.

Industry groups Grain SA and the Fertiliser Association of South Africa warned this week that the twin blows on the fuel and fertiliser fronts “... will have direct and material implications for South African producers, who remain particularly vulnerable due to the country’s reliance on imported fuel and fertiliser.”

There has been a growing chorus of warnings about the implications for food prices and security, and the viability of farming operations because of the Middle East conflict, which has reduced the supplies of fuel and fertiliser passing through the choke point of the Strait of Hormuz.

IMF warning

The International Monetary Fund (IMF) – which is not known for hyperbole – also sounded a warning this week about the ripple effects of the conflict.

“Parts of the Middle East, Africa, Asia-Pacific and Latin America face the added strain of higher food and fertiliser prices and tighter financial conditions. Low-income countries are especially at risk of food insecurity; some may need more external support – even as such assistance has been declining,” the IMF said in a report written by its regional directors and top economists.

“The world faces yet another shock ... Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth.”

It pointedly noted that for fuel-importing economies such as South Africa’s, the impact is akin to “... that of a large, sudden tax on income”.

This is how a global shock grows, and the seeds are planted by surging fuel, fertiliser and food prices, reaping a bitter harvest for the entire economy.

“The interruption of crop-nutrient supplies from the Gulf comes just as planting season begins in the Northern Hemisphere, threatening yields and harvests through the year and pushing food prices higher ... If elevated energy and food prices persist, they will fuel inflation worldwide. Historically, sustained oil‑price spikes have tended to push inflation higher and growth lower,” the IMF said.

“The most vulnerable will bear the heaviest burden. People in low‑income countries are most at risk when prices rise because food accounts for about 36% of consumption on average, compared with 20% in emerging market economies and 9% in advanced economies. That makes any spike in fertiliser and food prices not just an economic problem but a sociopolitical one.”

South Africa falls in the emerging market category, but given its glaring levels of inequality, that percentage widely varies. Stats SA has found that the lowest income categories in South Africa spend as much as a third of their income on food.

The IMF, for its part, will provide a fuller assessment in its next World Economic Outlook on 14 April. If the conflict is still raging, expect a shock. DM