The decrease in the price of fuel brings relief to farmers, eases pressure on consumers and could lead to interest rate cuts in South Africa.

This is also a major reprieve for an economy that is undergoing a recession.

The latest drop in the petrol and diesel prices of 19c and 55c a litre, respectively is a result of lower oil prices on the back off the coronavirus that is wreaking havoc globally since an outbreak late in 2019.

First National Bank (FNB) projects the cumulative decrease in petrol and diesel so far this year will help limit the impact of the expected fuel levy increase of 25c per litre by April 2020.

“This will 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,” stated Paul Makube, Senior Agricultural Economist at FNB Agribusiness.

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,” Makube added.

He said fuel and diesel were 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.

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

“This may possibly lead to further interest rate cuts later on in the year, given the improved inflation expectations,” he said.

Credit to CAJ News.