AGRICULTURE NEWS - Diesel is a key input cost for farmers and the hike in fuel prices will almost certainly see an increase in the costs of agricultural produce.
Peter McNaughton, operations director of Kelston Motor Group, who oversees dealerships in Graaff Reinet, Cradock, Somerset East, Grahamstown and Queenstown that serve the agricultural sector, predicted that the R1,10 per litre increase would create upward pressure on end-user prices.
"The majority of farmers in South Africa are price takers and unable to pass these costs on. This means they are forced to accept the price that the market offers. Unless they can move further down the supply chain towards the consumer, there is no opportunity to pass on the increased costs."
His comments came after the new fuel prices, which include an increase of R2,43 per litre for 95 octane petrol at the coast.
These increases, said McNaughton, would not only affect the farming communities in the medium to long term but also vehicle sales.
"With things like fuel costs climbing we are seeing a trend of increasing expenses being matched with a reduction in income – certainly from a dealership perspective. The effects of these increases and resulting inflationary pressures, compounded by other factors, will reduce consumers’ ability to replace their vehicles and therefore, we will see a decrease in demand."
McNaughton expected new stock pipelines to improve in the months ahead, which could see prices being adapted downwards due to increased supply.
"That being said, the worldwide inflationary pressure driven by a multitude of reasons, one being the higher oil price, will result in higher prices on vehicles going forward."
He warned that rising fuel costs had a secondary effect on interest rates, which might further curtail demand.
"It inflates monthly instalments if vehicles are financed, and this increased cost of ownership reduces the appetite of consumers. However, we often see a trend of consumers ‘buying down’ when they can no longer afford the instalments of their more expensive vehicles."
This could only work when there was positive equity in a vehicle, he explained.
McNaughton believed that dealerships might be forced to offer better trade-in assistance to increase affordability but this was dependent on the availability of new and used stock.
