Business
Benefits of falling oil prices continue to elude African farmers
“The drop in global oil prices has not been felt in Zambia. The reduction in prices has been extremely negligible and means nothing to the farming community,” said 62-year-old Request Muntanga, who owns a 500 hectare (1235 acre) maize farm south of Lusaka.
Only in South Africa, where fuel price changes filter through faster and the government is stricter about ensuring reductions are passed on, have farmers seen major savings. According to commercial farmers group AgriSA, for every 0.1 rand drop in the domestic fuel price, farmers nationwide save an annualized 100 million rand (US$8.6 million). Economists forecast that a liter of gasoline will fall to 11.44 rand (US$0.98) a liter next month, its lowest since August 2012 and 20 percent below a record 14.39 rand (US$1.23) in April. If sustained, such a decline means US$250 million wiped off the annual fuel bill of South Africa’s commercial farmers.
The knock-on effect is even greater as the price of chemical fertilizer, another hydrocarbon by-product, should also come down over time. “If fertilizer prices do come down it will have a huge effect,” AgriSA President Johannes Moller said. “Production will go up and food prices will at least start rising slower, or may even come down. It is good news all round.”
In Nigeria, where agriculture accounts for 40 percent of gross domestic product (GDP), only a few large commercial farms have also been able to use their purchasing power to extract savings. “The drop in energy prices directly impacts the cost of urea which is the biggest farming input cost,” said Kola Masha, managing director of agriculture investment firm Doreo Partners.
Nigeria, too, has seen a sharp decline in its currency in the last three months, but Masha said this may ultimately reinforce the importance of diversifying the economy to reduce its 90 percent reliance on oil for foreign exchange. “A drop in oil should encourage governments to diversify, which should help agriculture businesses,” Masha said. “If governments see they need to diversify into areas like agriculture then these oil price shocks will not be so painful.”
A version of this article was first published on The Africa Report
