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Fuel hike puts further pressure on consumers and agriculture sector

Fuel hike puts further pressure on consumers and agriculture sector

By Christo Viljoen

Head: Agri and Tourism at FNB Namibia

Last week local consumers faced a hefty hike in fuel costs. Although this is the first increase in six months, compared to South Africa, it is nevertheless a steep hike, bound to affect all..

Both petrol and diesel went up by 60 cents per litre. The pump price for fuel at Walvis Bay went up from N$ 11.70 per litre for 95 Octane Unleaded Petrol to N$12.30, as well as from N$11.73 to N$12.63 per litre for Diesel 500ppm, while the Diesel 50 ppm increased to N$12.68 from the current by N$11.78 per litre.

We all know that an increase in the fuel price has a snowball effect on everything, leading to price increases on all basic necessities as well as food, impacting not only the man on the street but also the businesses which try to recoup costs from the already hard-hit consumer.

Impact of increases on agriculture in SA and spin-off to Namibia

In South Africa it is estimated that a R1/ litre increase in fuel costs equates to a R1 billion rand increase in input costs per year to the agriculture sector. These costs manifest differently across the various industries from planting, harvesting, distribution and packaging.

The higher crude oil price is a double whammy due to the direct influence on the fuel price and the indirect influence on oil derivatives such as fertilizer, pesticides and herbicides all of which are inputs in crop farming.

The summer crop season has ended, and harvesting is in full swing with a total of 3.85 million hectares and an additional 500,500 hectares of wheat is currently being planted in the Western Cape. This could easily translate into additional cost of over R153 million rand. Bear in mind that the distribution of agricultural produce is dominated by road transport, so the net effect of fuel increases is reduced profit margins for producers.

Logistics companies in the agriculture value chain will also be hard hit, for example, over 80% of grain is transported by road. These costs will eventually be passed on to the consumer up the value chain.

Namibia imports a bulk of its goods and services from South Africa. Of course, this includes products from and for the agricultural sector and any increases will also be applicable in Namibia.

Imports in Namibia increased to N$18972.40 million in the fourth quarter of 2017 from N$18341.30 million in the third quarter of 2017. Imports in Namibia averaged N$9124.62 million from 1999 until 2017, reaching an all-time high of N$23731.50 million in the second quarter of 2015 and a record low of N$1991.60 million in the first quarter of 1999.

Impact on consumers: Erosion of disposable income

For low income households, transport costs account for a large portion of household expenditure and the consequence of a sustained fuel price increase will further erode disposable income and cause financial stress.

This will force a change in spending patterns with a cut in spending on luxury items and frequency of visits to eateries. As businesses face additional costs in transport, packaging and distribution, they eventually pass these onto the consumer which ultimately feeds into rising inflation.

The concern remains that given the state of current inflation that remains relatively low compared to 2017, the cost pressures that are likely to emanate given the fuel price adjustment will negatively affect the consumer. The recent decision to keep interest rates unchanged brings no relief to consumers who will have to buckle up and ride the current tide in the economy. Wise spending and better money management will have to prevail.

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