Rising input costs a serious challenge for future food production

21 October 2021

Rising input costs, such as direct materials, direct labour and other overheads, are posing a major challenge to food production in South Africa.

“The costs of fertiliser, herbicides, packaging, diesel, electricity and labour, to name a few, are increasing rapidly, making it nearly impossible for many farmers to produce food sustainably,” warns Christo van der Rheede, executive director of Agri SA.

Agri SA is therefore appealing to all stakeholders, including government, to engage and intervene in order to reduce the costs of critical inputs. “And to optimise substitute products available locally to avert an impending crisis in terms of sustainable food production and ultimately food security.”

These solutions and substitute products are on our doorstep, assures Van der Rheede.

Whilst international fertiliser prices have risen rapidly over the past year, South Africa boasts with one of the world's largest producers of phosphate and phosphoric acid, that is Foskor. However, according to a recent study from Bureau for Food and Agricultural Policy (BFAP), South Africa is rated the third most expensive country in terms of fertiliser cost for a grain and oilseed producer.

“Moreover, in recent years, South Africa has become more and more dependent on imported fertiliser as a result of Foskor’s inability to sell affordable phosphate to the South African fertiliser market,” says Van der Rheede. “Currently, South Africa imports approximately 80% of phosphate for fertiliser manufacturers. This has an adverse effect on fertiliser prices, which subsequently leads to significant increases in the variable production cost of farmers.”

It is well known that Foskor has some of the best quality of phosphate resources in the world and has the capability and capacity to provide phosphate to Southern Africa. However, management and supply challenges are driving the phosphate price increase and delays. This is compounded by the frequent closures of the manufacturing plants in Richards Bay, which causes disruptions in the supply chain.

“The combination of price increase to farmers and disruptions in the supply is putting food security at risk and have a severe impact on the profitability and sustainability farmers,” Van der Rheede says.

Agri SA appeals to the IDC and the Ministry of Trade and Industry to engage with the agricultural industry and other stakeholders to optimise the output of Foskor and to ensure that the agricultural industry benefit from a regular supply and affordable pricing. “This is critical as several big fertiliser manufacturers in Europe have been forced to cut back on production due to higher gas prices.”

The natural gas price used to produce fertiliser has been hiked significantly. Recent power restrictions and outages across China due to coal shortages have also intensified competition between Asia and Europe in securing sources of energy.

Agri SA also notes that the annual fuel inflation has been consistently higher than overall headline inflation since April 2021. According to Statistics SA, food inflation is steadily on the rise, up from 2,8% in August this year to 5% in September. The potential change in fuel prices is very concerning with planting in motion for the summer crop season. 

According to the Automobile Association (AA), the current exchange rate and commodity data predict fuel price hikes of "catastrophic proportions" at the end of October, with petrol up 99 cents per litre and diesel a staggering R1,42 a litre. “This is really concerning and will have a disastrous impact of the profitability of many farming operations.”

Therefore, Agri SA calls on the Department of Minerals and Energy to deregulate the fuel price with immediate effect. “In this regard we can no longer be held hostage by policies or policy makers that seek greater control by government over the economy and the critical commodities such as fuel, electricity, water and gas. This call is supported by National Treasury who, in a discussion document released in 2019, already proposed the deregulation of the country’s fuel price as one of the many measures proposed to stimulate economic growth and to lower the cost of diesel.”

In addition, South Africa also has access to an abundance of coal reserves. This resource must be optimised to make cheaper fuel available to all economic sectors and the agricultural sector in particular. “Fossil fuels, such as gas, are also abundant in the region and can be utilised for various power programmes.”

Producing affordable, cheap and healthy food should be South Africa’s number one priority. “Imagine the social upheaval if food becomes too expensive or there is a shortage of food in the country. In the absence of producer support, it is critical that input costs be kept under control and at an affordable rate. In this regard government, in collaboration with all agricultural stakeholders, have a critical role to play to keep the agricultural sector profitable and competitive!”

Issued by Christo van der Rheede, Agri SA Executive Director, 21 October 2021