Agriculture

[1]  The agricultural input costs have increased quite significantly driven by the rising cost of raw materials, increased demand, logistics constraints and high freight rates. The situation was further exacerbated by extreme weather conditions, Covid-19-related impacts and the ongoing Russia-Ukraine war. In the second quarter of 2022, the agricultural industry expenditure on intermediate goods such as fuel, electricity and fertilizer combined was around R12.8 billion and showed a 14% increase when compared to the same quarter in 2021. Expenditure on fuel went up by 16%, electricity by 7% and fertilizers by 15% based on data from the Department of Agriculture, Land Reform and Rural Development [DALRRD]. In a broader context, the energy supply challenges are also influenced by the move to renewable energy which has direct effects on the prices of biodiesel and vegetable oils used for their manufacturing.  Coupled with the Russian-Ukrainian war, the prices of crude oil and other gases are negatively affected.

[2]  The cost of inputs is one of the factors driving the increase in the prices of commodities. South Africa’s annual consumer price inflation was at 7.8% in July 2022 compared to 7.4% in June 2022 [StatsSA, 2022]. Furthermore, on a month-to-month basis, the consumer price increased by 1.5% in July 2022. Food and non-alcoholic beverages are among the main items driving this increase. The increases in fertilizer and fuel prices have an adverse impact on the economic viability of farming, and as consequence, depending on the exposure of the farming enterprise, this will also influence the farming operation. The department has been proactive in working closely with the sector to identify constraints so that the agricultural sector remains viable. However, it is important to recognise that the challenges experienced by agriculture are due to macro-economic factors.

[3]  The current data shows that the national annual consumer price inflation reached 7.8% in July 2022 from 7.4% in June 2022. In both cases, the consumer price inflation is significantly high and driving this growth is the prices of food and non-alcoholic beverages among other items. The Western Cape average consumer price inflation for all items was 7.1% in June 2022 (on year-on-year basis], which was slightly lower than the headline inflation recorded at national [7.4%] observed during the same month. The observed price changes on a month-to-month basis showed a decline for fruit [-6.4%], other foods [-0.2%], wine [-0.2%] and an increase in the case of vegetables [-04%], bread and cereals [1.8%], meat [1.3%], and sugar [0.5%] in June.  Road transport is crucial to the agricultural value chain, hence the increase in fuel prices is a major concern from a food security point of view. The recent lowering of fuel prices is welcomed as this contributes to the reduction in production costs at the farm level. However, the Russia-Ukraine war continues to pose a major threat since RSA and Western Cape are dependent on imports of inputs (e.g. fertilizers, seeds) from those countries. Evidently, in June 2022 (month-on-month) the observed change in the Western Cape average food prices was driven by bread and cereals [1.8%], meat [1.3%), and sugar [0.5%]. The underpinning factors for such increase in the Western Cape food items can be associated with limited wheat supply at the global market due to the Russia-Ukraine war, increasing global commodity prices as well the general increase in global input prices amongst other things.