Oil prices and lower demand for SA agri products can impact local industry
Loading player...
As per usual we hear from, Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, Agbiz, about the latest in the agricultural markets.
He says the rising fuel price and a slow down in the demand for South African agriculture products on an international level could be contributing factors to an already uncertain local agricultural sector. Oil prices were under pressure since the start of March this year, following a dispute between Saudi Arabia and Russia which led to both countries increasing their oil production. This was however beneficial to import countries such as South Africa, which over the same period, saw a drastic weakening of the Rand. In the absence of increased global oil production, the weakening domestic currency would have resulted in notable increases in oil prices, and in return, fuel prices, which are a key input in the agricultural and agribusiness sector.
This should be consider a factor in the grain sector, which is approaching its harvest season . Fuel accounts for 11% of South Africa’s grain production costs. The Fuel price would be notable in this regard. Together with that agribusiness, that is in the logistics business, could feel a similar impact. About 80% of South Africa’s grain is transported by road and also a greater volume of other agricultural products.
South Africa is therefore not completely out of the woods, given that the aforementioned conditions which had necessitated lower oil production have changed. The Organization of the Petroleum Exporting Countries (OPEC )agreed to reduce oil production by 9.7 million barrels a day in May and June, which roughly equates to 10% of global supply. Moreover, there is a commitment to continue oil reductions until April 2022. This means that the decline we saw in oil prices could soon be reversed, and the impact of that could begin to appear in domestic fuel prices from May this year.
He says the rising fuel price and a slow down in the demand for South African agriculture products on an international level could be contributing factors to an already uncertain local agricultural sector. Oil prices were under pressure since the start of March this year, following a dispute between Saudi Arabia and Russia which led to both countries increasing their oil production. This was however beneficial to import countries such as South Africa, which over the same period, saw a drastic weakening of the Rand. In the absence of increased global oil production, the weakening domestic currency would have resulted in notable increases in oil prices, and in return, fuel prices, which are a key input in the agricultural and agribusiness sector.
This should be consider a factor in the grain sector, which is approaching its harvest season . Fuel accounts for 11% of South Africa’s grain production costs. The Fuel price would be notable in this regard. Together with that agribusiness, that is in the logistics business, could feel a similar impact. About 80% of South Africa’s grain is transported by road and also a greater volume of other agricultural products.
South Africa is therefore not completely out of the woods, given that the aforementioned conditions which had necessitated lower oil production have changed. The Organization of the Petroleum Exporting Countries (OPEC )agreed to reduce oil production by 9.7 million barrels a day in May and June, which roughly equates to 10% of global supply. Moreover, there is a commitment to continue oil reductions until April 2022. This means that the decline we saw in oil prices could soon be reversed, and the impact of that could begin to appear in domestic fuel prices from May this year.
