While South Africa was benefiting from an abundant harvest and high prices for agricultural commodities, rising input costs could erode these gains when farmers embark on the 2021/22 production season.
WHILE South Africa was benefiting from an abundant harvest and high prices for agricultural commodities, rising input costs could erode these gains when farmers embark on the 2021/22 production season.
The input costs include oil, herbicides and fertilisers. The 2021/22 production season starts in October.
Chief economist of the Agricultural Business Chamber of South Africa (Agbiz), Wandile Sihlobo, said the price of Brent crude oil was up 72 percent year-on-year, trading at about $74 (about R1 070) per barrel at the end of the first week of this month.
The oil price is closely correlated with the prices of fertiliser and various agrochemical inputs. As such, the prices of herbicides exhibited similar increases in dollar terms, with glyphosate up 144 percent year-on-year last month, Sihlobo said.
He said that the same was true for fertiliser, with the prices of potash, urea, monoammonium phosphate and diammonium phosphate up 32 percent, 52 percent, 67 percent and 69 percent, respectively, in the first week of this month.
Sihlobo said tight global supplies, strong demand and geopolitical uncertainties in crucial producing countries had been the primary drivers of the prices for these commodities.
“Recently, Opec’s failure to reach a deal to increase global oil production is one example of factors causing tight oil supplies in the global market and ultimately driving up prices,” he said.
South Africa imports all of its annual consumption of agrochemicals, Sihlobo said.
Analysts expect fertiliser prices to remain elevated for some time.
Agbiz said that with the new season’s planting period only three months away, South African farmers were unlikely to be spared higher input costs. Fuel accounted for between 11 and 13 percent of the production costs of grain and oilseed farmers. Their fuel consumption peaked during planting and harvesting.
South Africa transports about 81 percent of its maize, 76 percent of its wheat and 69 percent of its soybeans by road. As a result, Sihlobo said, farm managers and agribusinesses would have to plan for a different environment to last year, when input costs were relatively low.
South Africa imports about 80 percent of its annual fertiliser consumption and accounts for a mere 0.5 percent of the global market.
Local prices tend to be influenced by developments in the major producing and consuming countries, such as India, Russia, the US and Canada.
Much of the fertiliser imported by South Africa was used in maize production, accounting for 41 percent of total fertiliser consumption. Sugar cane was the second-largest consumer, at 18 percent.
Agbiz said higher grain prices and a bumper harvest might look good on the financial books in the near term, but a slightly more challenging environment of rising costs was expected in the coming months.
If grain prices softened, which was likely with an expected sizeable global harvest in the 2021/22 season, farmers’ finances could be in an even tighter environment in the coming months.
“Another critical factor for the domestic farmers will be the rand to the US dollar (exchange rate), which is key in determining the ultimate prices that farmers will pay to their various suppliers of production inputs when planting begins in October,” Agbiz said.