- Rising input costs, such as fertiliser which may increase between 32% to 69%, will put pressure on farmers.
- Fertiliser can constitute over 50% of some farmers' expenditure on input costs.
- The grain sector will especially feel the strain, given it is the largest consumer of fertiliser.
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Just as South Africa's agricultural sector was recovering from several years of drought, rising input costs and massive jumps in fertiliser prices will put pressure on farmers.
Despite 2020 being a challenging year for South Africa's economy, the agricultural industry experienced some green shoots, growing 15.9%. According to the Bureau for Food and Agricultural Policy's estimations, the sector is set to have risen 7.6% in 2021.
But, with double-digit increases expected this year for critical input components such as fertiliser and agrichemicals, labour, and electricity costs, farmers will be left with expensive bills to produce basic food.
Among farmers' most significant concerns are prices for fertilisers, which are expected to rise the most compared to other input costs. Some types of fertiliser already saw triple-digit increases last year, with glyphosate soaring 144% year on year in June.
With the 2021/2022 production season in motion, fertiliser costs are expected to rise between 32% to 69%.
For some farmers, fertiliser costs constitute over 50% of their total input costs, depending on the type of agricultural subsector they operate in, said Dawie Maree, head of information and marketing at FNB Agribusiness.
"… For the agronomy sector, which is horticulture, and the grains and food crops, for those industries, fertilisers, and fuel are the most important… [input components], and that constitutes anything up to 50% of your input cost, although variable input costs," Maree said.
Part of the sector's challenges concerning fertiliser is that South Africa relies on the international market for its fertiliser and sources mainly from Saudi Arabia, China, Russia, Germany, and other countries such as Qatar, Chile, and the Netherlands.
"We are a net importer of fertiliser and therefore dependent on the international prices, especially also the oil price," said Jannie Strydom, CEO for Agri Western Cape.
Even if the sector were to produce fertiliser locally, they would still need to import the majority of the fertiliser components, he said.
Across the board, input costs look set to post double-digit increases. The minimum wage may rise by 16.1%, and Eskom has applied for a 20.5% tariff raise with the National Energy Regulator of South Africa. Petrol and diesel costs have also increased significantly.
According to Strydom, salary and wages are about 13% of farmers' expenditure, and water and electricity are 2.8%, which translates to more than R9 billion annually.
The sector will not be able to budget for the increases, he said.
"It's enormous, and it's pressure on the bottom line of the farming enterprise," said Strydom.
Maree said farmers will have difficulty absorbing further increases in input costs, citing that the pressure is undoing the agricultural sector's gains during the past two years.
Grain commodities, including staple foods like maize, are most sensitive to the rise is input costs and will likely be more expensive, Maree said.
Last year, South Africa's total maize production was projected to reach 16.2 million tons in 2021 from a previous 15.3 million tons in 2020. Of the country's total production, about 11.5 million tons of maize is consumed in South Africa annually.