SA’s farmers could be forced to plant less, as input costs increase

South African farmers may resort to planting fewer crops, as persistent load shedding disrupts planting schedules and spiralling fuel prices make it more expensive to undertake daily farming operations.

This is according to Agri SA executive director Christo van der Rheede, who believes that the current challenges faced by the country’s food producers could have serious repercussions not only for the sector but for food security too.

With Eskom placing the entire country on a power supply roster, farmers – especially those who are dependent on the national grid – are left unable to use pumping stations, irrigation, cooling and other systems which are critical to their operations, explained Rheede.

“Farmers are already reporting huge losses as processing machinery, irrigation equipment and other machinery are damaged and come to a standstill due to power outages.”

“With essential systems unavailable during the day, farm workers are required to work after hours. Such overtime wages increase production costs which are already increasing,” he adds.

Eskom finally signing a wage deal with labour unions on Tuesday comes as welcome relief for ordinary South Africans, businesses and industries like the farming sector, that are hoping to see load shedding easing as a result.

Delivery delays

Load shedding has also hit farmers hard in terms of trading with retailers, as they struggle to maintain these working relationships.

According to Rheede, retailers are rejecting fresh produce from farmers due to delivery delays caused by Eskom’s power cuts.

“The power outages are also causing waste and financial losses due to the impact on food storage. Retailers are starting to reject fresh produce, mainly vegetables due to delays in delivery and disruption in the cold chain.”

“In summer this challenge increases exponentially. This will reduce the amount of food available and increase its cost to the consumer,” he adds.

Fuel hikes piling the pressure

Senior agricultural economist at FNB Agri-Business Paul Makube echoed some of Rheede’s sentiments, adding that mounting cost pressures for producers in the sector may end up forcing some out of the industry.

In a note on Tuesday, Makube said that when compared with that of consumers, producer prices have risen at increasing rates as a result of fuel price hikes and input shortages emanating from global supply chain disruptions.

“The May 2022 agriculture producer price index (PPI) increased by 19.3% y/y, with sharp increases of 30.8% y/y for the cereals and other crops and 20.8% y/y for the fruit and vegetable subcategories.”

On Wednesday, the price of petrol was between R2.37 and R 2.57 more expensive per litre, while diesel was between R2.30 and R2.31 pricier per litre.

“The combination of higher debt serving costs in a record high input cost environment will continue to erode farmer producer margins and may force those that had already been in a dire financial situation to quit,” Makube says.

Although producers in the sector may not feel the financial pinch simultaneously, the economist warns that consumers might. The latest FNB/BER Consumer Confidence Index (CCI) for the second quarter of 2022 showed that consumer spending has already started contracting: more bad news for producers.

“Reduced spending may dampen demand and subsequently prices for produce, despite input costs unrelenting at elevated levels, thus a potential squeeze on producer margins in the near term,” Makube says.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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