The recent announcement by the department of minerals and energy (DME) about the decrease of petrol prices and the increase of diesel prices would drive up production costs and thus impact negatively the livelihood of ordinary citizens.
Increasing fuel input costs
This is a warning sounded by André Kirsten, vice-chairperson of Grain SA’s Winter Grain working group. He said input costs are also sky-rocketing with production particularly in the Swartland region – in the Western Cape – under pressure because of dry climatic conditions. Putting in context the impact of the diesel increase on the farmers, Kirsten said: “It takes roughly 27l of diesel per hour to harvest [a crop], which means that this increase will result in fuel input costs increasing by roughly R2, 70/hour.” This is the third time in a row this year that the price of petrol has decreased after it hit a R25 a litre mark.
Bitter-sweet outcomes
Head of agriculture information and marketing at FNB, Dawie Maree said the announcement by the DME is a double-edged sword. On the one hand the decrease in petrol prices represents good news for consumers, as it would help to free up some dispensable income, which was already under severe pressure. On the other hand, he said, the higher diesel prices would drive up food prices in the long run.
Low demand from China
Based on the DME’s statement, the price of 93 octane petrol would decrease by 89c/l, and 95 octane by R1,02/l, following a drop of more than R2/l for each of these grades in September. The price of 0,05% sulphur diesel would increase by 10c/l and that of 0,005% sulphur by 15c/l. This was attributed to continued high demand and low supplies of diesel on the global market.
The DME said the price adjustments was due to Brent crude oil prices decreasing from US$94 (about R1 667) per barrel to US$89,79 (R1 593) per barrel during the period under review. It said this is also largely due to low demand from China; the release of crude oil stocks by the International Energy Agency’s member countries; Saudi Arabia cutting oil prices to compete with cheaper oil from Russia. In addition, this is also as a result of fears of a global recession that would affect the demand.
Safer investment option
Furthermore, the rand depreciated to its weakest level since May 2020, from about R16, 70 to R17, 55, against the US dollar during this period. The US Federal Reserve’s recent 75 basis points increase in interest rates also added more pressure. This saw the US currency being perceived as “a safer investment option” than emerging market currencies, said the department’s statement. In July this year, diesel prices reached record highs, with 0, 05% sulphur trading at about R17, 63/l and 0,005% sulphur traded at R17, 76/l at the coast. These prices had since declined each month thereafter to reach R15, 13/l for 0, 05% sulphur and R15, 33/l for 0,005% sulphur in September, added the DME.
Summer rainfall areas
Elaborating further on the impact of the diesel price increase on production, Maree said farmers who would be particularly affected are those in the summer rainfall area who would shortly start planting crops such as maize and soya bean, and those in the winter rainfall area of the Western Cape, who were preparing to harvest crops such as wheat. But he said many of these farmers must have already made their diesel purchases for the season, which could help to keep the costs under control.
Hope for further fuel reduction
Maree said he remains optimistic about the future fuel decreases, adding that if prices remained at current levels and the rand-dollar exchange rate improved, there was a good chance that fuel prices could see another reduction next month. Kirsten also sounded upbeat saying he hopes the diesel prices would be reduced in November when planting in the northern regions of the country and harvesting in the Western Cape would be in full swing.
