Fertilizer, of which more than 80% is imported, accounts for between 30% and 50% of producers’ variable costs, putting farmers under further pressure. (Photo: iStock)
The ongoing conflict in the Middle East has plunged global energy markets into a state of extreme volatility, with Brent crude oil prices soaring in recent weeks.
This increase has an enormous effect on international diesel prices and the global fertilizer market, which puts increasing cost pressure on South Africa’s grain and oilseed producers.
Diesel accounts for between 13% and 15% of a grain and oilseed producer’s variable production costs. Since South Africa imports a significant part of the diesel for domestic use, this leaves the agricultural sector extremely vulnerable to global price shocks. Fertilizer, of which more than 80% is imported, accounts for between 30% and 50% of producers’ variable costs, putting farmers under further pressure.
Richard Krige, chairman of Grain SA and Tobias Doyer, CEO of Grain SA. (Photo: Janice du Plessis/Maroela Media)
Richard Krige, the chairman of Grain SA, says he is deeply concerned about the challenges that producers are currently facing.
“As South Africa prepares for planting winter cereals and harvesting summer crops, the combined effects of rising diesel and fertilizer prices are presenting one of the most significant price shocks to producers in recent years.
“Without temporary relief and responsible action by all those involved in the value chain, the impact on the viability of farmers – and therefore food security – can be serious.”
Appeal to the government, treasury
In a recent letter to the department of mineral resources and energy, as well as the national treasury, Graan SA warned that the current trends could lead to a significant increase in the next regulated diesel price.
It is calculated that this adjustment could amount to even more than R8 per liter – a crushing increase that will put unsustainable financial pressure on consumers, transport operators and key sectors in the economy.
“Fuel expenses amount to around 14% of total production costs in primary farming, and the energy-driven increases have a direct impact on fertilizer prices. This amplifies the pressure across the entire value chain and puts producers under enormous pressure.”
Fair fertilizer prices demanded
Grain SA also approached Fertasa, the fertilizer association of South Africa, in writing after reports that certain fertilizer companies may be raising prices based on world events, even if their stock was purchased at prices that prevailed before the conflict.
The combined effect of rising diesel and fertilizer prices is one of the most significant price shocks to producers in recent years. (Photo: Pixabay)
The organization makes an urgent appeal to suppliers to avoid opportunistic or unjustified price increases during this critical period.
Dr. Tobias Doyer, CEO of Graan SA, emphasizes the importance of collective responsibility.
“World crises should not be used as a pretext for unnecessary price increases in South Africa. We call on fertilizer companies, fuel suppliers and partners in government to work with us to stabilize the sector during this turbulent period.
“Farmers cannot absorb unlimited shocks in input costs, and South Africa cannot afford disruptions in food production.”
Availability of diesel is crucial
In addition to the price issue, Grain SA is also in discussion with diesel suppliers to ensure that there is enough diesel available for the coming planting and harvesting season. It is essential to maintain uninterrupted food production amid the current geopolitical uncertainty.
(Photo: Christel Cornelissen/Maroela Media)
To mitigate the immediate risks, Grain SA has made formal requests for coordinated national support. The agricultural association demands temporary relief on taxes and levies to temper the expected April fuel price increases, fair and transparent pricing practices for fertilizers and diesel, as well as for the assured availability of diesel during the critical planting and harvesting periods.
The organization says that although farmers currently receive 40% of the general fuel levy and 100% of the Road Accident Fund levy through the diesel refund system, a temporary extension of this rebate could provide essential relief.
“At a time when margins are already under pressure, the sustainability of grain production depends not only on global conditions, but on how effectively domestic stakeholders respond,” says Doyer.