What to Expect With Inputs Costs

The Bureau for Food and Agricultural Policy (BFAP) 2020-2029 Baseline has been released, and we will be doing two or three blogs on some BFAP findings. The first one is on the place of agricultural inputs in South Africa.

Photo by WORKSITE Ltd. on Unsplash

The Bureau for Food and Agricultural Policy (BFAP) 2020-2029 Baseline has been released, and we will be studying it to see what updates are required to Agribook content pages. We will also do two or three blogs on the BFAP findings. The first blog is on the place of agricultural inputs in South Africa.

South Africa as Net Exporter or Agricultural Products

South Africa is a net exporter of agricultural products. The sector is valued for this, not only as an employer, but also because of the foreign exchange that is spent by other countries on buying our products. It is money that comes into our country and helps with our balance of payments. (A country that has more money flowing out than is coming in soon ends up with debt and other issues).

Importer of Inputs

A sobering note though is how dependent we are on several major inputs. This has been pointed to over the years in studies and policy documents – the government’s Agricultural Policy Action Plans (APAP) in 2015 and in several BFAP Baselines, for example.

The 2020-2029 Baseline looks at some of these: products related to mechanisation (e.g. tractors, implements, machinery and parts), fertilisers, animal feeds and plant protection chemicals. We quote and bullet point the following:

For mechanisation related products, tractors with a size exceeding 130kW constituted the largest share of imports at 32 percent. Machinery parts comprised 20 percent of this category with an average imported value of R826 million per annum.
With regard to the value of fertiliser imports, Urea comprises 42 percent, followed by mono-ammonium phosphates (18%) and potassium chloride (17%).
Imports of plant protection products, which spans multiple tariff lines, were separated into herbicides (41%), insecticides (34%), fungicides (17%) and others (8%).
Within the animal feeds category, oilcake related products and preparations used in animal feeds constituted 68 percent.

Who do we Import From?

At 30 percent, the EU is our main source of imports.
The Middle-East (mainly fertilisers) comes in at second place at 16 percent.
These two areas are followed by the USA (14%) and China (12%).

Risks of Reliance on Imports

The risks associated with the high dependence on imports for critical inputs are twofold:

Are the inputs available? Covid-19 revealed many weaknesses in domestic and international supply chains.
There are also risks around affordability. An unpredictable exchange rate causes price volatility.

How the Exchange Rate and Price of Oil Affect us

A weak Rand means that the money exporters get translates into more Rands, and so that is the positive. The negative is that when the Rand becomes weaker, more money has to be spent to buy the same goods.

Since they are derived from oil, fuel and fertiliser prices are directly influenced by oil prices, while sea freight and distribution costs mean that the oil price affects all imported inputs like chemicals, plant protection and machinery.

The 2020 Baseline tells us that over the past decade, these two factors and rising labour costs have led to substantial increases in the input cost structure of the sector.

What We can Expect in Terms of Inputs

BFAP is always at pains to emphasise that it is “NOT a forecast but a look at COULD happen under a particular set of assumptions”. So what is it that could happen?

Fuel and fertiliser costs should go down as global oil prices have declined. Benefits here will be offset by a weaker Rand though.
Other input costs like machinery and vaccines will increase in South Africa because of the weaker exchange rate.
Feed grain prices are increasing. While this is good news for the grain farmers, it is negative for the livestock farmer. Feed costs go up.

Effective Value Chains Can Cushion Negatives

Inefficiencies in the supply chain can risk food security and cause loss in income and jobs, and “South Africa’s agricultural input supply chains face a number of challenges in the midst of the COVID-19 crisis amidst significant volatility and the poor economic prospects”.

Some of these cannot be helped, yet what can make a huge difference is access to and distribution of inputs is proper planning and management of supply chains. This includes everything from when the input crosses the oceans to when it arrives on the farm: the shipping, what happens at the harbours, the inland transport, warehousing and all related support services.

Relevant pages on the Agribook website include: