The expected increase in consumption later coupled with the 25c a litre fuel levy could see fuel prices skyrocket to new highs not yet seen before. Photo: Timothy Bernard/African News Agency (ANA)
The expected increase in consumption later coupled with the 25c a litre fuel levy could see fuel prices skyrocket to new highs not yet seen before. Photo: Timothy Bernard/African News Agency (ANA)

LISTEN: Petrol and diesel price decrease bring relief to farmers, but for how long?

By Sizwe Dlamini Time of article published Mar 3, 2020

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CAPE TOWN – The latest drop in the fuel and diesel prices of 19c and 55c a litre, respectively, as a result of lower oil prices will provide relief for consumers, according to FNB Cash Investments chief executive Himal Parbhoo.

Parbhoo said the cumulative decrease in petrol and diesel so far this year would help limit the impact of the expected fuel levy increase of 25c a litre by April. 

“Given that 70 percent of South Africa’s food is transported by road, the decrease in the petrol and diesel price is likely to have a positive impact on food inflation, easing pressure on consumers who are already struggling to make ends meet,” he said.

Senior agricultural economist at FNB Agribusiness Paul Makube said this would likely contribute to positive cash flow, lower cost of production and improved profitability as petrol and diesel make up a significant amount of farm input costs.

“The drop comes at a critical time as farmers start stocking up on diesel ahead of the harvesting period. Moreover, farmers are increasingly using petrol and diesel for backup generators in light of the current power supply challenges.

“Fuel and diesel are also commonly used for tillage, machinery and transportation, making them a critical component for both small-scale and commercial farmers, as well as the entire agricultural value chain,” he said.

Makube said this might possibly lead to further interest rate cuts later on in the year, given the improved inflation expectations.

However, Efficient Group economist Dawie Roodt was not so optimistic, saying while the decreases effective later this week would bring welcome relief to motorists it would only be a temporary respite.

“This tanking in the fuel price is entirely due to the massive slowdown in China as a result of the coronavirus outbreak. The moment the virus epidemic is back under control and the Chinese economy springs back into action, the price of crude oil will spike and we will see massive fuel price hikes in South Africa.

“While it is difficult to predict exactly what the coronavirus will do, it is beginning to look as if it is slowing down. This means that we could be seeing increases as early as March or April,” he said.

Roodt warned that the increase in consumption later in the year coupled with the 25 cents a litre fuel levy imposed by Finance Minister Tito Mboweni could see fuel prices skyrocket to new highs not yet seen before.

Neil Roets, chief executive of Debt Rescue, said they were gearing up for one of the busiest years in the history of the company because of the growing numbers of distressed consumers who wanted to go under debt review.

“We expect the rising fuel price later in the year to have a massive impact on consumers. This will be especially bad since the substantial reduction that kicks in this week is going to create a false sense of security.

“Many will believe that this is going to last despite warnings to the contrary and see that as a licence to splurge,” Roets said.

He said it was virtually a foregone conclusion that Moody’s would be cutting South Africa’s sovereign debt rating to junk status making it that much more expensive for both the government and consumers to borrow money.

He said almost half of all consumers were three months or more behind in their payments. The major culprits are credit and store cards followed closely by unsecured debt.

“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors,” Roets said.

Roets warned that 2020 was going to be a tough year and that consumers who had difficulty making ends meet in 2019 were going to find it much harder this year.

BUSINESS REPORT

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