08 September 2023
By: Michelle van der Spuy
The latest diesel price rise is a significant setback for farmers, coming at a time when they must keep their machinery tanks full, says Dawie Maree, head of information and marketing at FNB Agriculture.
The diesel price hike of R2.80 a litre, effective today, represents a month-on-month increase of approximately 14%, which will hit farmers’ profitability.
“We are in a period of high diesel consumption in the agricultural sector, especially in the grain industry, which is gearing up for the planting season in the eastern parts of South Africa and approaching the harvesting season in the winter grain areas,” says Maree.
“Where farmers had budgeted for a certain diesel expense, that calculation must now be adjusted with a 14% increase, which will have an adverse impact on profitability.”
The indirect impact of the price increase is that the costs of inputs such as fertilizer, which are transported by road, will rise. It will also become more expensive for farmers to send products such as vegetables and fruits to the market.
“The price hike is a significant setback for farmers at this time of the year,” says Maree.
“It is very difficult to advise farmers on how to limit the impact of the diesel price increase. Diesel is a non-discretionary expense. They have no choice in the matter. Diesel needs to be put into the machinery to be able to produce.
“Farmers are already using technology to make their diesel consumption as efficient as possible, but it only helps up to a point.”
Impact on road freight
Gavin Kelly, CEO of the Road Freight Association, says transporters are also feeling the pinch of rising fuel prices, and some may not be able to increase their rates accordingly.
“As fuel prices rise, transporters will have to raise their prices to cover the increasing costs,” he says.
“While this may sound like a simple process, there will be some transporters who cannot do so because they are bound by contracts or will price themselves out of the market, and therefore they may have to close their doors.”
A significant problem for transporters is securing funding for operating costs when they are sometimes paid up to three months after work is completed.
“Meanwhile, the next loads need to be moved, and they need fuel for that. There are no endless cash reserves for the high levels of fuel expenditure,” says Kelly.
According to him, the association is hearing from more and more members who are struggling or even crumbling under high fuel costs. At the same time, their clients are reducing cargo volumes or even suspending cargo transport.
“Transporters will feel the impact on their businesses. Many transporters will not be able to get guarantees to purchase fuel on credit.
“They have to pay for fuel, drivers and other costs, and still run a business. Some will simply not have the necessary cash to sustain themselves for 90 days.”
Kelly says diesel price increases drive up transport and logistics costs. Since 85% of South Africa’s goods are transported by road, there will also be price increases for consumers.
“Both you and I will pay more for everything. From food to fuel, from clothes to electronic goods and everything else,” he says.
“Transport costs will rise. There is no alternative for transporters, and those who cannot afford to transport cargo at the prices their clients are willing to pay will simply close their doors.”
