The region is key to South Africa’s agriculture, both for exports and for its influence on oil and gas prices, says Wandile Sihlobo.
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The region is key to South Africa’s agriculture, both for exports and for its influence on oil and gas prices, says Wandile Sihlobo.
We are watching the worrying developments in the Middle East, which is likely to have a knock-on impact locally.
The region is key to South Africa’s agriculture, both for exports and for its influence on oil and gas prices.
In terms of exports, we are in a slow period of the year. Our fruit exports will gain momentum from May, while grain exports have been generally slow this year due to ample supplies in the world market.
Meat exports are also weak, primarily due to challenges with foot-and-mouth disease in South Africa.
No answers yet
The impact of the war on these will only be clear in the weeks and months to come, depending on the length of the conflict and the extent of the disruption in the region.
South Africa’s agriculture doesn’t trade much with Iran, but it does trade with various countries in the region, including the United Arab Emirates, Qatar, and Jordan.
Thus, the extent of the disruption’s spread will need to be watched closely, along with logistical issues.
Fuel price factor
In terms of oil prices, the next fuel price changes in South Africa, after the recent increases that came into effect this week, will only be in April. The impact of the higher oil prices will be clearer at that time.
But if oil remains above $80 per barrle and the rand remains weaker, there will be significant fuel price increases in April. This is unless the government steps in, as in 2022, after the Russian invasion of Ukraine and subsidises some of the cost.
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Similarly, the scale of disruption in the oil market, along with logistics in shipments, is among the aspects we are considering.
Farming and fertiliser
Fuel accounts for roughly 13% of grain farmers’ input costs and a notable share of other value chains’ costs.
April onwards is a high-consumption period for farmers preparing to plant winter crops, as well as those about to start early harvest of summer grains and citrus.
Therefore, the potential fuel price increase will likely put upward pressure on prices in the sector.
While not prominently discussed, we also closely monitor the fertiliser market. Typically, when fuel prices increase, we tend to see similar movements in fertiliser prices. This is another area worth monitoring.
The start of the winter crop season means an increase in fertiliser usage. Fertiliser typically accounts for 35% of grain farmers’ input costs and a substantial share of other value chains’ input costs.
Again, these are early days, and the situation in the Middle East is evolving rapidly.
For now, these are some of the early channels of the price risks we are watching in South Africa’s agriculture.
Wandile Sihlobo is the chief economist of the Agricultural Business Chamber of South Africa. He is also a senior research fellow in the Department of Agricultural Economics at Stellenbosch University.
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