W Cape agricultural sector threatened by rising costs, supply problems in wake of Russia-Ukraine conflict

THE Western Cape’s agricultural sector, a key driver of the province’s economy, is under threat from rising costs and supply problems caused by the ongoing Russia-Ukraine conflict.

Finance and Economic Development MEC David Maynier, delivering the provincial budget earlier this week, warned that the war in Ukraine could scupper the region’s post-Covid-19 economic recovery, as petrol and food prices spike and bottlenecks occur in the supply chain.

According to budget documents, positive growth is expected in all sectors, except for agriculture, in the 2022/2023 financial year. This was in part due to the rise in fuel and fertiliser costs, and ongoing infrastructure challenges, including at the country’s port and rail systems, as well as electricity supply.

Agriculture is a key contributor to the Western Cape economy and its export market. Agricultural and agri-processed products accounted for seven out of the top 10 exports in the 2020/2021 financial year.

“The Russia-Ukraine crisis will result in the dampening of the economic growth of the province should the prices of goods that the Western Cape imports from Russia increase at a faster rate than the goods exported from the province,” the document states.

“While the Western Cape does not import energy or oil from Russia, in 2021, the province imported 68.5% of all its fertiliser from Russia. Disruptions to fertiliser supply may have knock-on effects on agricultural production.

“The conflict has impacted on the price of food commodities, such as wheat, which poses a key risk as South Africa is reliant on wheat imports. The Western Cape contributes 50% of total wheat production in South Africa. Although higher global wheat prices will benefit local farmers, this will have negative repercussions on food security in South Africa.

“Rising agricultural input costs, such as oil and fertiliser, could lead to food inflation in other commodities. That said, R3 billion, or 2.1% of Western Cape exports go to Russia and are at risk. Of this, R3bn is the edible fruit and nuts category, accounting for 6.6% of all exports to the world."

Agri-Western Cape chief executive Jannie Strydom said the unfolding conflict between the two European countries was a concern, based on the impact it would have on their sector.

“In terms of our imports and exports to and from those two countries, we see that roughly more than R2bn of imports come from those two countries to our country, and we export more than R4bn to those countries, especially the fruit industry,” he said.

“If those markets are closed we need to seek alternative markets, which could lead to pressure on those alternative markets and then result in price pressure for the primary producer.

“Another concern is the cost of inputs in terms of fertiliser and also oil that will reflect in the fuel price. In terms of wheat imports, that can lead to pressure in terms of bread usage and production and that can lead to higher prices that we don’t want to see."

Agri South Africa has also made a plea for the government to come up with a plan to help mitigate the impact on their sector.

Agricultural economist Kulani Siweya said that with global wheat prices and agricultural input costs sky-rocketing, the government must suspend fuel levies to provide relief for farmers and contain food prices for South African consumers.

“Ukraine and Russia are both major producers of wheat on the global market, accounting for a quarter of global wheat exports, and the disruption to the supply of this staple food will cause food price shocks globally, particularly in South Africa given that we import 30% of our total wheat from these nations,” he said.

“Brent crude oil prices have also almost tripled between February and March. With the recent and still expected fuel price increases, the cost of taking food to South African consumers will rise substantially in the coming months unless the government acts to contain them.

“The conflict will therefore have substantial consequences for South Africa’s agricultural sector performance, and government must take action to mitigate the devastating impact of this lost revenue on the nation’s farmers by assisting with measures such as opening up market access so that products that are destined for Ukraine can be redirected. Every day this action is delayed puts much-needed jobs in the sector at risk."

The Western Cape legislature’s chairperson on the standing committee for agriculture, Andricus van der Westhuizen, said they were encouraged by a commitment by Agriculture MEC Ivan Meyer to develop an action plan for farmers in a bid to protect the sector against any further disruptions.

“I will be writing to (MEC) Meyer to request that he briefs the committee on agriculture once his plan of action has been finalised. It is critical that provincial and national governments make every effort to mitigate the impact of the war on both consumers and farmers,” he said.