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Fuel Prices Drag Down Agri-inflation, As Urea Refuses To Budge


By:Nghiinomenwa-vali Erastus
Agri-inflation came down to 8.7% in the first quarter of 2023 slowing down from 2022 levels above 15% when comparing year-on-year.
This is according to the first Quarter Agri-Review 2023compiled by the Namibia Agricultural Union (NAU) researcher Bertha Xulu.
The slow increase in agricultural inputs can be considered a relief to farmers locally who have been experiencing high costs of agricultural inputs, at the same time servicing their roughly N$7.21 billion agricultural debts.
Despite the overall slowdown in agri inputs prices led by fuel in the country, NAU has highlighted that urea and phosphate prices by the end of the first quarter (year on year)rose by 26.8% and 21.8%, respectively.
Urea and phosphate are critical inputs in the agricultural sector, their prices and availability affect agricultural output.
Phosphate is critical in fertiliser, while urea is a fertiliser and animal feed additive also.
On the other hand, fuel is used in agricultural machinery, and equipment and also to generate electricity for agricultural activities such as pumping water and irrigating.
As for local agri-inflation, the slowdown in fuel prices was probably the single biggest force behind the downward trend in agri-inflation.
Diesel price dropped by one cent between Q12022 and Q12023, whereas it had increased by more than 57.6% from Q12021 to Q12022.
Petrol prices rose by 1.3% between Q1-2022 and Q12023, while it had hiked by 49.3% between Q12021 and Q12022.
Hence, a drastic dip in fuel cost inflation from 53.5% in Q12022 to below 1% in Q12023, the NAU review shows.
Xulu highlighted that year-on-year significant price reductions have been observed internationally and in South Africa.
Urea and phosphate prices fell by 43.4% and 18.3% internationally, and by 30.0% and 10% in South Africa, respectively, when comparing Q12023 with Q12022.
In Namibia, urea and phosphate prices have, however, not followed international trends as they rose by 26.8% and 21.8%, respectively.
The local yellow maize which is also a critical input in animal feed, its price rose by 32.8% year-on-year.
The agri-inputs can also be worsened or smoothened by the exchange rate, as many of the inputs are imported into the country.
In the review, Xulu’s assessment shows that most exchange rates increased year-on-year, and the US dollar strengthened by 16.5% against the Namibian dollar.
“As such, local producers continue to bear the burden of high costs for imported inputs,” she stated.
The South African Futures Exchange (SAFEX) analysis has indicated that the average prices for yellow maize and soybean from Q12022 to Q12023 rose by 11.7% and 10.2%, respectively but slowed down from Q42022 to Q12023.
Xulu adds that for yellow maize, the rate of further downward adjustments for the remaining part of 2023 could be marginal as global demand for the grain is expected to rise due to forecasted shortages in the Northern Hemisphere.
The NAU researcher’s review also revealed that indications for Q22023 are that local prices for most feed inputs are showing downward adjustments.
Meanwhile, for the livestock sector, the Quarterly Review has highlighted that the cost of inputs went up by 33.5% between Q12020 and Q12023, which is more than the percentage at which the producer prices increased with.
The farmers are not only facing input cost inflation, some of them have borrowed capital through different channels and they have to repay such money at the existing prime rate.
In the Quarterly Review, Xulu explained that the substantial increase of the repo rate from 3.92% in Q12022 to 6.92% in Q12023 ( 7.75% currently) has resulted in a hike in average lending (prime) rates from 7.50% in Q12022 to 10.67% in Q12023.
Considering the slight increase in the loans from N$7.14 billion in 2021 (June) to N$7.21 billion in 2022 (June), pose a challenge in accessing needed capital in the agricultural sector.
“The rise in the lending rates could slow down the uptake and repayment of loans by farmers who are already facing high operational costs,” Xulu pointed out.
Farming is becoming more capital intensive, as climate change prompts more innovation to improve yield and output, thus access to capital is a crucial factor.
In comparison, the country’s average annual inflation rate for Q12023 stood at 7.1% compared to 4.5% recorded in the same period in 2022, while agri-inflation was recorded at 8.7%.
Food and non-alcoholic beverages constituted 16.5% of the consumer price basket.
Average food inflation alone was 14.6% in Q12023 versus 5.3% in Q1-2022, and major increases occurred in fruits (26.1%), bread and cereals (21.7%), vegetables including potatoes and other tubers (13.4%), and sugar, jam, honey, syrups, chocolate, and confectionery (12.9%).
It is also worth noting that most of the food and fruit items are imported due to low local production as for the bread and cereals, most of the wheat and maize grains are also imported.
With prices for most food categories having spiked during Q12023, consumer buying power has been negatively impacted which in turn affects demand for produce, Xulu noted.
High food inflation and electricity costs weakened consumer demand for red meat in South Africa, a trend that Xulu highlighted that is observed locally as depicted in weaner prices.Email:

Nghiinomenwa-vali Erastus

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