By Paul Makube, Senior Agricultural Economist, FNB Commercial
The recent announcement of another drop in fuel prices is a positive development for farmers as it comes at the right time at the onset of the heightened activity in the agriculture calendar. We are now heading into the increased demand for fuel period in agriculture due to the summer crop harvesting and the planting of winter crops.
The combination of the US tariff onslaught and elevated trade tensions and their consequent drag on global economic growth continued to weigh heavily on international crude oil prices. The improved global supply oil outlook with elevated production from non-OPEC and OPEC+ members added further downward pressure.
According to the Department of Mineral and Petroleum Resources, international Brent crude oil prices fell by 6.5% (-US$4.65/bbl.) month-on-month (m/m) during the fuel price review period which more than offset the 3% (+R0.54/U$S) m/m rand weakness.
Consequently, the price of the two grades of petrol decreased by 22 cents/ litre to R21.29/ litre and R21.40/ litre for the 93 (ULP) and 95 (ULP & LRP) respectively. The two grades of diesel saw decreases of 42 and 41 cents/ litre to R18.90/ litre and R18.93/ litre for the 0.05% and the 0.005% sulphur content respectively.
This will boost farmer profitability as fuel accounts for almost 13% of input costs in grain production.
Farmers will soon ramp up their harvesting of 4.44 million hectares under summer crops as well as planting of 827,970, for winter crops. Further, the export season for citrus has begun and will benefit from the reduced cost of distribution of produce to ports. Finally, consumers will benefit immensely as food inflation and headline inflation are contained on the downside thus affording the SARB room to cut or maintain interest rates at lower levels.
