The Russian invasion of Ukraine thousands of kilometres away could drive the local fuel price up to R40 a litre, while a fertiliser shortage and associated high prices could affect South African farmers and, consequently, food security, experts say.
Agricultural Business Chamber of SA chief economist Wandile Sihlobo wrote in his weekly market report this week that there were concerns about the war’s effects on stocks and prices of wheat, maize and sunflower oil, of which Russia and Ukraine are major producers.
In addition, Russia is important for agricultural inputs such as fertilisers and the minerals or chemicals used in them.
According to Trade Map data, Russia is the world’s largest exporter of fertiliser (by value), followed by China, Canada and the US.
Sihlobo wrote that it was unclear to what extent fertiliser exports would be disrupted, but sanctions against Russia and the exclusion of certain Russian banks from the global Swift system could negatively affect that country’s trading activity.
Swift is a global provider of a secure financial messaging service that connects more than 11 000 financial institutions.
Sihlobo wrote that any shortages and higher prices could affect South African farmers in the winter grain production areas, who had to start planting within a month or so and were ordering their fertiliser now.
Shané Rudolph, an agricultural economist at Agri Enterprises, said some fertiliser prices had risen by about 70% recently, and further increases could put pressure on farmers and affect food security.
The increases so far have been due to limited supplies in major producing countries such as China, India and the US, as well as higher shipping costs due to Covid-19.
Sihlobo explained that South Africa was Russia’s 36th-largest market for fertiliser materials and that the country imports about 80% of our annual need for fertiliser because we could not produce much locally, due partly to a lack of the necessary minerals.
Most fertiliser imported by South Africa is used in maize production (about 41% of total fertiliser consumption), followed by sugar cane production (18%). Fertiliser makes up about 35% of local grain farmers’ input costs, and also a large part of the costs of other agricultural commodities and crops.
According to Sihlobo, farmers who planted summer crops would only have to buy fertiliser by the third quarter of the year in preparation for the 2022/23 production season. However, there was still a lot of uncertainty about where prices were going.
Experts also warned that exporters of South African wine and fruit, especially citrus, could feel the pinch during the war in Ukraine.
Sihlobo wrote that South Africa exported a lot of fruit to Russia. In 2020, 7% of our citrus exports (in value) went to that country, as did 12% of apples and pears.
He said in an interview with Moneyweb that South Africa was on the eve of the citrus harvest season and if fewer citrus fruit went to Russia, producer prices could fall.
Last year, Russia received 6.9 million litres of South Africa’s wine exports, with a value of about R207 million, according to News24.
Tim Hutchinson, executive chairperson of DGB, South Africa’s leading premier wine company with brands such as Boschendal and Douglas Green, told News24 that the organisation’s shipments intended for Russia and Ukraine were being held back because of uncertainty over Swift payments.
Rudolph said that, apart from fertiliser prices, the oil price directly affected farmers’ input costs and could make food prices more expensive for the end consumer.
The ongoing war sent oil prices to more than $114 (R1 710) a barrel on Friday. By Thursday, the under-recovery on the fuel price was about R2.10/litre, which meant that fuel could become a further R2/litre more expensive next month, following this week’s R1.46/litre price hike at the pumps.
André Thomashausen, emeritus professor of international law at Unisa, said that, in a worst-case scenario, South Africans could expect to pay about R40 for a litre of fuel.
According to Agri SA, fuel costs make up about 13% of grain and oil seed farmers’ production costs. About 80% of grain in th–e country is transported by road.
Agri SA is therefore concerned about the rising input costs for farmers, which will be further burdened by Eskom’s tariff increase of more than 9%, which will come into effect on April 1, as well as an increase of 6.9% in the national minimum wage.
The Russia-Ukraine war had already led to an increase in certain agricultural commodity prices, such as wheat, which had risen by about 20% since the beginning of this year, said Rudolph.
Ukraine has about 42 million hectares of agricultural land and is one of the three largest grain exporters in the world.
UKRAINE’S VITAL ROLE
Analysts believe the closure of ports and railways in the country, known as the breadbasket of Europe, could affect exports of products such as maize and wheat.
Russia accounts for 18% of global wheat exports and Ukraine for 8%. More than 40% of Ukraine’s annual maize and wheat consignments are distributed to the Middle East or Africa.
According to Sihlobo, the international prices of maize, wheat, soya beans and sunflower oil are now between 11% and 35% higher than they were a year ago.
Although higher commodity prices are good for farmers and partially mitigate the effects of higher fertiliser prices, they are bad news for consumers.
Food price inflation in South Africa is rising rapidly. Dawie Maree of FNB Agriculture expects consumer price inflation and food inflation to rise in the short term. Fuel price inflation, which has a major impact on food prices, was 6.2% in the second half of January.