Another headache for consumers in South Africa this month – but there is a silver lining

Consumers in South Africa can expect to shoulder higher prices at grocery stores as extra operational costs for food production and transportation amid increased diesel prices are carried onto them.

On 2 November, diesel prices climbed by R1.40 per litre, taking the inland wholesale price to R25.75. Prices have remained inflated as the supply of fuel is constrained both domestically and internationally.

Europe and the US are tightening their reserves on diesel as global demand for it climbs after Russia’s invasion of Ukraine. According to Goldman Sachs Group, the international price of diesel is expected to rise further as the commodity appears to become more scarce.

In South Africa, diesel is largely imported. Economists and researchers alike have pointed to our over-reliance on global supply chains and the fact that we lack critical refining capacity as a perfect storm for a diesel shortage if anything along the supply chain goes wrong.

Speaking to ENCA, executive director of AgriSA, Christo van der Rheede, said that the farming industry relies heavily on diesel, and thus the increased price hits the industry hard.

Diesel is not only used for the transportation of produce from the farm but all the way down to the irrigation of crops where now, in cases of load shedding, farmers are turning to diesel to power the water systems to ensure crops get looked after, he said.

Diesel is also critical in the harvesting process, where machinery and large-scale vehicles are used.

According to the agricultural expert, the added pressure from high diesel prices is partially absorbed by farmers. Despite this, costs will ultimately be carried directly onto the consumer in the form of bigger price tags on common goods in grocery stores.

As to where the impact will be felt, Van der Rheede said it will likely hit the price of some vegetables, meat, and bread.

Food inflation

Alongside hiked diesel prices, The Bureau for Food and Agricultural Policy (BFAP) predicts that food prices will increase dramatically next year if local crop production is thrown off course by any unforeseen events.

The group observed that despite South Africa’s high food inflation, which is expected to continue high in 2023, local prices have remained lower than those of international markets as a result of excess local supply.

“South Africa continues to trade at export parity for key commodities such as maize, sunflower, soybeans and canola,” said the BFAP.

“This essentially means that surplus production is keeping local prices low and that inflationary trends are driven by global prices, the weak exchange rate and growing costs of logistics and processing of products, such as transport, electricity and wages.”

The BFAP warned that if the country fails to keep producing a surplus of certain crops, consumers could feel a 30% increase.

However, according to an analysis by FNB, South Africa is in store for a bumper crop season, which should ease anxieties over such an increase.

“Early indications are that South Africa’s farmers intend to plant almost 0.2% more hectares under summer crops for the 2022/23 production year, according to the latest update from the National Crop Estimates Committee,” FNB said.

“The expected total summer crop planted area is seen at 4.351 million hectares with soybeans being the biggest gainer, and at a potential average production of 2.5 million tons, this is a record high for the crop.”

The rest of the crops showed declines in the expected planting area across the board. This is, however, early days, and the situation is likely to change as the season progresses.

“At 2.59 million hectares, the intended maize crop planted area is still higher than the 10-year and 5-year averages of 2.53ha and 2.57ha, respectively and likely to yield a sizeable crop of 14.59 million ha. This is still well above the 10-year and 5-year harvest averages of 13.12 million tons and 14.56 million tons, thus easily meeting the domestic consumption of 11.8 million tons and a good surplus.”

The ramp-up in output will boost the domestic availability of soybeans and, subsequently, soymeal, thus reducing import dependency.

“(This is) obviously, a positive development for the livestock market as it is a major protein source for animal feed,” it said.

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