Business News 22.8.2016 03:55 pm

Lower fuel price a relief to struggling farmers – Economist

Photo: Supplied

Photo: Supplied

Fuel and diesel is commonly used for tillage, harvesting, machinery and transportation, making it a critical component for both small-scale and commercial farmers.

An FNB Business agricultural economist said on Monday that a further decrease in the price of fuel and diesel by 65 cents on average would go a long way to providing relief to farmers who were still struggling financially due to the impact of the drought.

Dawie Maree, head of information and marketing at FNB Business Agriculture, said farmers in South Africa were being severely tested by the drought and would take a couple of years before they could fully recover.

Another fuel price decrease of at least 69 cents per litre was expected at the beginning of September, and Maree said any form of relief was welcome.

Although lower prices will have a different impact on field crop and livestock farmers, depending on how their operations were set up, there is potential to lower production costs, lessening strain on cash flow.

In a statement, Maree said small-scale farmers in particular, who have suffered most from the drought, would significantly save costs and may expect improved cash flow.

Fuel and diesel is commonly used for tillage, harvesting, machinery and transportation, making it a critical component for both small-scale and commercial farmers, as well as the entire agricultural value chain.

“Fuel prices are extremely volatile, as they are influenced by a number of economic factors ranging from global oil prices to currency exchange rate volatility,” Maree said.

“As a result, farmers that have cash on hand should consider buying fuel and diesel in bulk, as there is no guarantee that prices will remain low.”

Maree also said lower fuel prices were beneficial for the entire value chain, as transport costs and diesel specifically had an important role to play in distribution and input costs.

“The same principle applies to the fruit export industry, where cash flow often comes under pressure when the rand strengthens,” Maree said.

“Furthermore, lower fuel costs in the long-term would probably result in lower food inflation, which would benefit consumers, who are also under significant pressure. However, consumers should expect a delayed effect, as it could take several months before the savings translate to lower food prices, considering that fuel prices do not increase in the interim.”

– African News Agency (ANA)

today in print