Input Cost Monitor: The Story of Maize and Wheat An Update FOREWORD November 21 Since 22, when exchange rate depreciation resulted in rising prices for most agricultural commodities and inputs, as well as retail food prices, there has been increasing interest in the behaviour of agricultural prices. This, for example, led to the establishment of a Food Price Monitoring Initiative by the National Agricultural Marketing Council (NAMC), and the publication of quarterly reports on changes in food prices. It was also realized, however, that it was important to monitor and disseminate information on changes in agricultural input costs. In August 26, a workshop was convened with stakeholders in the agricultural sector, at which it emerged that input cost monitoring would be a welcome addition to ongoing research on changes in agricultural-related prices. At this workshop, the NAMC was mandated to coordinate input cost monitoring on behalf of the agricultural industry. The NAMC has since taken up this activity in collaboration with various branches of the agricultural industry. Input cost monitoring, together with food price monitoring, now forms part of two of the NAMC s key research themes, namely, agro-food chain analysis and market information systems. Through monitoring input costs, the NAMC aims to be able to publish information on trends in farm input costs on a regular basis. This report provides broad trends in input costs for grains, more specifically in the maize and wheat industries (note that the trends of most input cost items are also applicable to other grains). In this report, the following issues are reported: (i) broad trends in input cost movements for the grain industry; (ii), the contribution of different variable input costs to the total variable input cost of maize and wheat; and (iii) trends in individual input cost items. A comparison of price indices (price movements of outputs and inputs) of maize and wheat Figure 1 shows trends for different input and output price indices from 199 to 29. It is noticeable that the producer price indices for maize (PPI-Maize), wheat (PPI-Wheat), all field crops (PPI-Field crops) 35 and all agricultural products (PPI-Total) have shown much more variability than the all 3 farming requisites index (FRPI-Total) since 21. Such variability brings about 25 uncertainty and risk, which affects farmers 2 decisions to plant and invest, and, hence, it also affects supply. The PPI-Maize and PPI- 15 Wheat increased by 255.3% and 121.6%, 1 respectively, from 199 to 29, whilst the PPI-Field crops and PPI-Total increased by 5 315.7% and 355.6%, respectively. During the same period, the FRPI-Total increased by 457.9%. 25=1 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 FRPI-Total PPI-Total PPI-Field crops PPI-Maize PPI-Wheat Figure 1: Comparison of various price indices, 199 to 29 1 Source: DAFF, 21 2 21 22 23 24 25 26 27 28 29 It is noteworthy that most of the inputs included in the FRPI-Total increased substantially in late 27 and early 28. This is highlighted later in the report. Figure 2 shows trends in the PPI-Maize, PPI-Wheat and selected intermediate inputs between 199 and 29 (note that intermediate inputs are part of the overall FRPI-Total). The intermediate inputs included are fertilizer, fuel, animal health and crop protection, maintenance, repairs and farm feed. 1 See Appendix A for definitions of different price indices. 1
All of the indices show an increasing trend over the depicted period. During 28, most of the prices depicted reached levels never seen before, except for maize, which almost reached the same level achieved during 22. During 29, record harvests in mostly developing countries, weaker demand for food as a result of the global economic slowdown, a weaker US Dollar and lower fuel prices have caused prices to decrease for most of the agricultural commodities. Fertilizer stock levels improved, the demand for fertilizer decreased and the crude oil price also decreased significantly, leading to a reduction in the fertilizer prices. 25=1 35 3 25 2 15 1 5 199 1991 1992 1993 PPI-Maize Fuel 1994 1995 1996 Maintenance and repairs PPI-Wheat 1997 1998 1999 2 21 Fertiliser 22 23 24 25 26 Animal health and crop protection Farm feed Figure 2: Trends in the PPI-Maize and PPI-Wheat versus selected intermediate inputs Source: DAFF, 21 27 28 29 Contribution of different variable input cost items to the total variable input cost of maize The main focus of this section is on the variable costs to produce maize 2 and, specifically, to express different variable input cost items as a percentage of the total variable input costs (see Appendix B for the different input cost components included in a typical input cost budget for maize). Due to the many different input cost items included, their relative contribution to the total variable cost and the format in which this information is generally available, it was necessary to aggregate certain variable inputs into an All other category (see Appendix C for existing Other cost and All other cost items). Figure 3 shows the average percentage contribution of selected variable input costs to the total variable input cost in the maize production regions mentioned in footnote 3. For the period under 35 consideration, fertilizer and lime contributed more than 26% to the total variable input cost (between 22% and 33%). 3 25 Maintenance and repairs contributed almost 12% and showed a declining trend in terms of its relative contribution to the total variable input cost. The seed cost showed an increase in its relative contribution to the total variable input cost, while the cost for herbicides remained more or less 6% of the total variable input cost. Fuel and labour contributed, on average, 22% to the total variable input cost. % 2 15 1 5 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Fertiliser & Lime Seed Herbicides All other Maintenance & Repairs Interest on production credit Insecticides and fungicides Fuel and labour Figure 3: Average percentage contribution of individual variable cost items to the total variable input cost 3 Source: Grain SA, 21 and own calculations Note that the insecticides and fungicides were included with herbicides for 28/9. 2 For maize, the variable input cost information was available for six summer production areas. These are the North West Province, North-Western and Eastern Free State, Northern KwaZulu-Natal, and Middelburg and Ermelo in Mpumalanga. 3 From 23/4 for six areas; in 22/3 for five areas; in 21/2 for four areas; and in 1999/ for three areas. The information for 29/1 was not available during the preparation of this report. 2
Comparing the variable input cost items per production region for the 28/9 production season, producers in the Middelburg (Mpumalanga) region have the largest expenditure on fertilizers, i.e. fertilizers contributed 35.5% to the total variable input cost, followed by that of the North-Western Free State (see Figure 4). In the North West region, expenditure on fertilizers was the lowest, contributing 29.3% to the total variable input cost. In Ermelo (Mpumalanga), the seed cost, as a percentage of the total variable input cost, was the highest, while it was lowest in the Eastern Free State. The maintenance and repair cost, as a percentage of the total variable input cost, was highest in the Ermelo (Mpumalanga) and the Eastern Free State regions, while it had almost the same contribution to the total variable input cost in the other production areas. % 4 35 3 25 2 15 1 5 North West NW Free State Eastern FS Middelburg Mpumalanga Production area Fertiliser & Lime Maintenance & repairs Seed Northern KwaZulu-Natal Interest on production credit Weed and Pest control All other Fuel and labour Ermelo Mpumalanga Figure 4: Comparison of the contribution of different variable input cost items to the total variable input cost in different maize production regions (28/9) Source: Grain SA, 21 and own calculations Contribution of different variable input cost items to the total variable input cost of wheat 4 Figure 5a, 5b, 5c and 5d show the average percentage contribution of selected variable input costs to the total variable input cost in each of the following wheat production regions, respectively: the Southern Cape, Swartland (the western part of the Western Cape), the Western Free State and the Eastern Free State. For the period under consideration, fertilizer and lime contributed between 22% and 32% to the total variable input cost. Repairs and parts contributed between 13% and 14% to the total variable input cost. The seed cost contributed about 9 % to the total variable input cost, while the cost for herbicides was between 5% and 6% of the total variable input cost. Fuel contributed between 13% and 15% and labour between 7% and 8% to the total variable input cost. From Figure 5a, it is evident that fertilizer and lime contributed most to the total variable input cost, with 35.1% during 28/9 in the Southern Cape production region. The contribution of pest control to the total variable input cost increased the most from 21/2 to 28/9, by 2.9%, followed by the cost of weed control, which increased 194.7%. % of total variable costs 37.5 35. 32.5 3. 27.5 25. 22.5 2. 17.5 15. 12.5 1. 7.5 5. 2.5. 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Fuel Fertiliser and lime Permanent labour Crop insurance Seed Weed control Interest on production credit Pest control Repairs and parts All other Figure 5a: Percentage contribution of individual variable cost items to the total variable input cost (Southern Cape) Source: Grain SA, 21 and own calculations 4 The methodology for wheat is the same as for maize, please refer to Appendix B.2 and C for detail on the budgets. 3
Figure 5b shows the contribution of individual variable input cost items to the total variable input cost in the Swartland production area. The cost of fertilizer and lime contributed the most to the total variable cost during the depicted period and varied between 25.9% in 21/2 and 29.8% during 28/9. The contribution of the insecticides and fungicides cost to the total variable cost increased by 131.1% from 21/2 to 28/9. % of total variable costs 32.5 3. 27.5 25. 22.5 2. 17.5 15. 12.5 1. 7.5 5. 2.5. 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Fuel Fertiliser and lime Permanent labour Crop insurance Seed Herbicides Repairs and parts Interest on production credit Insecticides and fungicides All other Figure 5b: Percentage contribution of individual variable cost items to the total variable input cost (Swartland) Source: Grain SA, 21 and own calculations Figure 5c shows the contribution of individual variable input cost items to the total variable input cost in the Western Free State production region. The cost of fertilizer and lime contributed the most to the total variable input cost during the depicted period and varied between 21.6% in 21/2 and 33.9 % during 28/9. The contribution of the fuel cost to the total variable cost decreased from 18.3% to 14.1%. The relative contribution of permanent labour changed from 1% to 5% over the depicted period. % of total variable costs 37.5 35. 32.5 3. 27.5 25. 22.5 2. 17.5 15. 12.5 1. 7.5 5. 2.5. 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Fuel Fertiliser and lime Permanent labour Crop insurance Seed Weed control Repairs and parts Interest on production credit All other Figure 5c: Percentage contribution of individual variable cost items to the total variable input cost (Western Free State) Source: Grain SA, 21 and own calculations Figure 5d shows the contribution of individual variable input cost items to the total variable input cost in the Eastern Free State production area. Fertilizer and lime contributed the most to the total variable input cost with 3.3% during 28/9; this is 62.4% higher than the 18.7% achieved in 21/2. 4
% of total variable costs 32.5 3. 27.5 25. 22.5 2. 17.5 15. 12.5 1. 7.5 5. 2.5. 21/2 22/3 23/4 24/5 25/6 26/7 27/8 28/9 Fuel Fertiliser and lime Permanent labour Crop insurance Seed Weed control Repairs and parts Interest on production credit Pest control All other Figure 5d: Percentage contribution of individual variable cost items to the total variable input cost (Eastern Free State) Source: Grain SA, 21 and own calculations To compare the previous (28/9), current (29/1) and forthcoming (21/11) seasons, the most important variable input cost items of three wheat production regions are compared. The available data is for the Swartland, Western Free State and Eastern Free State production regions. Input costs for fertilizer and lime, fuel, weed control and repairs and parts were compared. Comparing the fertilizer cost per production region for the 29/1 and 21/11 seasons with that of the 28/9 production season, it emerged that fertilizer and lime makes the largest contribution to the total variable cost in the Swartland region, as can be seen in Figure 6a. In the Swartland region, the contribution of fertilizer and lime to the total variable input cost is expected to remain at 37.3% for the 21/11 season. During the same period, the relative contribution to the total variable input cost in the Western and Eastern Free State is expected to be 3.2% and 3.9%, respectively. % 4 Swartland W Free State E Free State 35 3 25 2 15 1 5 Fertiliser and lime 28/9 Swartland 29/1 Swartland 21/11 Swartland 28/9 Western Free State 29/1 Western Free State 21/11Western Free State 28/9 Eastern Free State 29/1 Eastern Free State 21/11 Eastern Free State Figure 6a: Comparison of the contribution of the fertilizer and lime cost to the total variable input cost in different wheat production regions in 28/9 to 21/11 5 Source: Grain SA and own calculations, 21 5 Note that the 29/1 and 21/11 budget figures, not the final production cost figures, were used in figures 6a to 6d. 5
Comparing the fuel cost per production region for the 29/1 and 21/11 seasons with that of the 28/9 production season, it emerges that the fuel cost makes the smallest contribution to the total variable input cost in the Swartland region, as seen in Figure 6b. In the Swartland region, the relative contribution of fuel is expected to increase to 8.6% in 21/11. For the Western Free State, the relative contribution to the total variable input cost is expected to increase to 12.4%. In the Eastern Free State, the relative contribution of fuel to the total variable input cost is expected to increase to 13.8% in 21/11. % 18 16 14 12 1 8 6 4 2 Swartland W Free State E Free State Figure 6b: Comparison of the contribution of the fuel cost to the total variable input cost in different wheat production regions in 28/9 to 21/11 Source: Grain SA and own calculations, 21 Fuel 28/9 Swartland 29/1 Swartland 21/11 Swartland 28/9 Western Free State 29/1 Western Free State 21/11Western Free State 28/9 Eastern Free State 29/1 Eastern Free State 21/11 Eastern Free State Comparing the weed control cost per production region for the 29/1 and 21/11 seasons with that of the 28/9 production season, it emerges that the largest change in the relative contribution of 1 Swartland W Free State E Free State weed control costs to the total variable input cost is in the Eastern Free State region, as seen in Figure 6c. 9 8 7 In the Swartland, the relative contribution of weed control cost to the total variable input cost is expected to decrease by 43.4% in 21/11. For the Western Free State, the relative contribution to the total variable input cost is expected to decrease to 7.1%. In the Eastern Free State, the relative contribution of weed control cost to the total variable input cost is expected to remain relatively constant at 1% in 21/11. % 6 5 4 3 2 1 Weed control 28/9 Swartland 29/1 Swartland 21/11 Swartland 28/9 Western Free State 29/1 Western Free State 21/11Western Free State 28/9 Eastern Free State 29/1 Eastern Free State 21/11 Eastern Free State Figure 6c: Comparison of the contribution of the weed control cost to the total variable input cost in different wheat production regions in 28/9 to 21/11 Source: Grain SA and own calculations, 21 6
Comparing the repairs and parts cost per production region for the 29/1 and 21/11 seasons with that of the 28/9 production season, it emerges that repairs and parts makes the largest contribution to the total variable input 14 Swartland W Free State E Free State 12 cost in the Eastern Free State region, as seen in Figure 6d. 1 In the Swartland, the relative contribution of the repairs and parts cost to the total variable input cost is expected to increase to 8.7% in 21/11. For the Western Free State, the relative contribution to the total variable input cost is expected to increase to 9.6%. In the Eastern Free State, the relative contribution of repairs and parts to the total variable input cost is expected to decrease to 1.7% in 21/11. % 8 6 4 2 Repairs and parts 28/9 Swartland 29/1 Swartland 21/11 Swartland 28/9 Western Free State 29/1 Western Free State 21/11Western Free State 28/9 Eastern Free State 29/1 Eastern Free State 21/11 Eastern Free State Changes in fertilizer prices Figure 6d: Comparison of the contribution of the repairs and parts cost to the total variable input cost in different wheat production regions in 28/9 to 21/11 Source: Grain SA and own calculations, 21 The South African fertilizer industry is fully exposed to world market forces in a totally deregulated environment, with no import tariffs or government sponsored measures. The local demand for fertilizer is in the region of 2 million physical tons; this amounts to approximately 75 tons of plant nutrient (N + P 2 O 5 + K 2 O). Table 1 shows the South African fertilizer demand, domestic production and import situation. Table 1: The South African fertilizer demand, domestic production and imports Nutrient Demand Domestic production Imports ( t) Products ( t) ( t) Nitrogen (N) 4 25 15 Mostly Urea Phosphate (P 2 O 5 ) 2 Over 9 % of demand <1 % of demand Mostly DAP Potassium (K 2 O) 16 None All Mostly MOP Source: FSSA, 21 South Africa is a net importer of potassium and imports approximately 5 % of its nitrogen requirements. Thus, the domestic prices are severely impacted by international prices of raw materials and fertilizers as well as shipping costs and the Rand/$ exchange rate. Figures 7 to 9 compare domestic and international price trends (expressed as indices: 25 = 1) for fertilizers over the period of 1997 to 29. All of the local prices are listed prices, excluding VAT and transport to the farm. It should be noted that the international prices were expressed in R/ton before they were converted into an index. In addition, the product is not at South African harbours, thus the international prices depicted exclude the cost, insurance and freight needed to land the product in South Africa. Furthermore, international FOB prices used differ from the usual port of origin for imports, but trends and general price levels are similar. 7
In Figure 7, the price movement of the local MAP price is compared with the price movement of the international DAP price 6. Price increases for the items depicted were as follows between 1997 and 29: Local MAP: 25.1% increase International DAP: 193.9% increase From 28 to 29, the following changes in prices occurred: Local MAP: 5.8% decrease International DAP: 65.8% decrease White maize (SAFEX): 16.7% decrease Wheat (SAFEX): 43.1% decrease R/$ exchange rate: 2.3% depreciation Index 25=1 75 7 65 6 55 5 45 4 35 3 25 2 15 1 5 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Local MAP Int. DAP R/$ Exchange rate Figure 7: Local MAP compared with international DAP Source: Grain SA, 21 and own calculations from listed prices Figure 8 shows the price movements of local urea in comparison with the price movements of international urea 7. Price increases for the items depicted were as follows between 1997 and 29: 55 5 Local urea: 246.9% increase International urea: 311.9% increase 45 4 From 28 to 29, the following changes in prices occurred: Local urea: 3.6% decrease International urea: 47.8% decrease White maize: 16.7% decrease Wheat: 43.1% decrease R/$ exchange rate: 2.3% depreciation Index 25=1 35 3 25 2 15 1 5 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Local Urea Pril (46) Int. Urea R/$ Exchange rate Figure 8: Local urea compared with international urea Source: Grain SA, 21 and own calculations from listed prices 6 The international DAP price is FOB, US Gulf in bulk. This comparison is made because both are a source of phosphate, although of different composition. 7 The international urea price is FOB, Eastern Europe in bulk. Although most urea is imported from the Arab Gulf, prices show the same movement but at slightly different levels. 8
Figure 9 shows the price movements of local potassium chloride in comparison with price movements of international muriate of potash (MOP) 8. Price increases for the items depicted were as follows between 1997 and 29: Local Potassium chloride: 664.1% increase International MOP: 1 265.4% increase From 28 to 29, the following changes in prices occurred: Local Potassium chloride: 8.1% increase International MOP: 4.1% decrease White maize: 16.7% decrease Wheat: 43.1% decrease R/$ exchange rate: 2.3% depreciation Index 25=1 15 1 95 9 85 8 75 7 65 6 55 5 45 4 35 3 25 2 15 1 5 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Local Potassium Chloride R/$ Exchange rate Int. Muriate of Potash (MOP) Figure 9: Local Potassium chloride compared with international Muriate of Potash (MOP) Source: Grain SA, 21 and own calculations from listed prices This section compares local fertilizer price changes for various selected fertilizers. To ensure easy interpretation of the data presented, price movements of only the local market of the identified fertilizers are presented in Figures 1 and 11. The PPI-Wheat and PPI-Maize are also included. Figure 1 shows that the trends for the items represented are generally upward. Price increases for the items depicted were as follows between 28 and 29: Local MAP: 5.8% decrease Local LAN (28): 3.1% decrease Local Urea prills: 3.6% decrease Local Potassium chloride granular: 8.1% increase PPI-Maize: 9.2% decrease PPI-Wheat: 57.4% decrease The 29 prices are still higher than the 1997 levels. Index 25=1 45 4 35 3 25 2 15 1 5 1997 1998 1999 2 21 22 Local MAP Local LAN (28) Local Ureum Pril (46) Figure 1: Price indices for different fertilizer products compared to the PPI-Wheat and PPI-Maize Source: DAFF, 21 and own calculations from listed prices 23 24 25 26 Local Potassium Chloride PPI-Maize PPI-Wheat 27 28 29 8 The international muriate of potash (MOP) price is FOB, CIS in bulk. Although most muriate of potash is imported from Vancouver and Israel, prices show the same movement but at slightly different levels. 9
Figure 11 shows that the trends for the items represented are also generally upward. Price increases for the items depicted were as follows between 28 and 29: Local 3.2.1 (25): 45% decrease Local 2.1. (3): 48% decrease Local 3.1. (28): 41.2% decrease Local Supers (1.5): 54.5% decrease PPI-Maize: 9.2% decrease PPI-Wheat: 57.4% decrease Index 25=1 5 45 4 35 3 25 2 15 1 5 The 29 prices are still higher than the 1997 levels. 1997 1998 1999 2 21 22 23 24 25 26 27 Local 3.1. (28) Local 2.1. (3) Local 3.2.1 (25) 28 29 Local Supers (1.5) PPI-Maize PPI-Wheat Figure 11: Price indices for different fertilizer products compared to the PPI-Wheat and PPI-Maize Source: DAFF, 21 and own calculations from listed prices There has been little to no growth in the local demand for fertilizer over the last 1 years and no significant growth is expected for the future 9. According to FSSA (21), the possibility exists that there could be a decline in demand for fertilizer locally due to: Over production of maize, which could partially be replaced with crops which use less fertilizer, such as wheat and oilseeds; Conversion of land used for crops to land used for livestock production due to a shift in consumer eating patterns; and The uncertainties around land reform have had a temporarily negative impact on fertilizer use and crop planting, which will prevail until upcoming farmers are fully established. On the positive side, developments in the bio-fuel industry may have a positive impact on crop demand and, thus, fertilizer demand. Changes in maize and wheat seed prices 1 The differences between cultivars of the various seed companies make it difficult to compare and construct a seed basket. Hence, the information depicted in Figure 12 provides only a general trend. Figure 12 shows the PPI-Maize, PPI-Wheat and the maize and wheat seed price indices. 9 Source: FSSA, 21. 1 Refer to previous Input Cost Monitor: The Story of Maize and Wheat on www.namc.co.za for more background information on seed. 1
Price increases were as follows for the items depicted between 2 and 29: PPI-Wheat: 34.2% increase Wheat seed price index: 272.5% increase PPI-Maize: 83% increase Maize seed price index: 13.7% increase From 28 to 29, the following changes in prices occurred: PPI-Wheat: 57.4% decrease Wheat seed price index: 13.7% increase PPI-Maize: 9.2 %decrease Maize seed price index: 13% increase 25=1 35 3 25 2 15 1 5 2 21 22 23 24 25 26 27 28 29 PPI-Wheat Wheat seed price index PPI-Maize Maize seed price index Figure 12: Average price movements for maize seed, wheat seed and maize and wheat Source: PPI-Maize and PPI-Wheat (DAFF, 21); Seed price indices (Grain SA) and own calculations, 21 Changes in tractor prices Figure 13 shows the price index for tractors 11, PPI-Maize, PPI-Wheat and the R/$ index. Price increases for the items depicted were as follows between 2 and 29: PPI-Wheat: 34.2% increase PPI-Maize: 83%increase Tractor price index: 16.7% increase R/$ index: 21.6% depreciation From 28 to 29 the following changes in prices occurred: PPI-Wheat: 57.4% decrease PPI-Maize: 9.2% decrease Tractor price index: 19.9% increase R/$ index: 2.3% depreciation 25 = 1 325 3 275 25 225 2 175 15 125 1 75 5 2 21 22 23 24 25 26 27 28 29 PPI-Wheat PPI-Maize Tractor price index R/$ index Figure 13: Average price movements for tractors, wheat and maize Source: PPI-Maize and PPI-Wheat (DAFF, 21); Tractor price index (Grain SA) and own calculations, 21 11 Recommended retail prices, excluding personal discounts. 11
Changes in fuel prices Figure 14 shows the prices of petrol 95 ULP Gauteng, petrol 95 ULP Coast and crude oil from January 26 to September 21. Price increases for the items depicted were as follows between January 26 and September 21: Petrol 95 ULP Gauteng: 47% increase Petrol 95 ULP Coast: 48.9% increase Crude oil: 23.2% increase From September 29 to September 21, the following changes in prices occurred: Petrol 95 ULP Gauteng:.2% increase Petrol 95 ULP Coast:.1% increase Crude oil: 15% increase R/litre 11. 1.5 1. 9.5 9. 8.5 8. 7.5 7. 6.5 6. 5.5 5. Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 F Figure 14: Petrol and crude oil prices Source: South African Petroleum Industry Association (SAPIA), 21 Mar-8 May-8 Petrol 95 ULP Gauteng Petrol 95 ULP Coast Crude oil $/barrel Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 14 13 12 11 1 9 8 7 6 5 4 3 $ per barrel Figure 15 shows the prices of diesel.5% S. Gauteng, diesel.5% S. Coast and crude oil from January 26 to September 21. Price increases for the items depicted were as follows between January 26 and September 21: Diesel.5% S. Gauteng: 42.6% increase Diesel.5% S. Coast: 43.6% increase Crude oil: 23.2 % increase From September 29 to September 21, the following changes in prices occurred: R/litre 12 11 1 9 8 7 6 5 4 Diesel.5% S Gauteng Diesel.5% S Coast Crude oil 16 14 12 1 8 6 4 2 $ per barrel Diesel.5% S. Gauteng: 5.3% increase Diesel.5% S. Coast: 5.4% increase Crude oil: 15% increase Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Figure 15: Diesel and crude oil prices Source: South African Petroleum Industry Association (SAPIA), 21 The fuel price in South Africa is linked to the international price of crude oil and is quoted in US dollars (US$) per barrel. Crude oil prices and the Rand/Dollar exchange rate therefore have a major impact on fuel prices (Department of Minerals and Energy, 28). The fuel pump price is made up of certain international and domestic price elements. The international element, or Basic Fuel Price (BFP), is based on the import parity principal (the cost incurred by a South African importer of fuel to buy the fuel from an international refinery, transport the product from that refinery, insure the product against losses at sea, and land the product on South African shores). To arrive at the final pump price in the different pricing zones (magisterial district zones), certain domestic transport costs, government imposts (or taxes and levies) and retail and wholesale margins need to be added to the international price. The government regulates the 12
petrol retail price. The Central Energy Fund (CEF) is responsible for the price calculation (on behalf of the Department of Minerals and Energy). Changes in margins and the transport element are based on actual costs incurred by the South African industry and are calculated according to a formula approved by the Minister of Minerals and Energy (ifleet, 27). For the period of 3 November to 3 November 21, the wholesale price for Diesel.5 % S is 746.45 cents per litre. The Basic Fuel Price amounted to 437.6 cents per litre. Figure 16 shows the breakdown of the other 38.8 cents per litre. The wholesale price of diesel is regulated, but the retail price is not. Farmers qualify for a fuel rebate of 13 cents per litre (April 21) on 8 % of their consumption, which is calculated as follows: The RAF (Road Accident Fund) levy (72 cents per litre) plus 4 % of the fuel tax (58 cents per litre). Slate levy,. cents, % RAF levy, 72 cents, 1% Customs & excise duty, 4 cents, 1% Petroleum Products levy,.2 cents, % Contribution to the Basic Fuel Price, 437.6 cents, 58% Fuel levy, 152.5 cents, 2% IP Tracer levy,.1 cents, % Zone differential in Gauteng, 15.5 cents, 2% Storage, handling & delivery costs, 1.8 cents, 1% Service cost recoveries, 1.8 cents, 1% Wholesale margin, 5.9 cents, 7% Figure 16: Breakdown of (Gauteng) diesel wholesale price: 746.45 c/l on 3 November (.5 % sulphur content) price (c/l); percentage (%) of total price Source: Department of Energy, 21 Disclaimer: Information contained in this document results from research funded wholly or in part by the NAMC acting in good faith. Opinions, attitudes and points of view expressed herein do not necessarily reflect the official position or policies of the NAMC. The NAMC makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this document and expressly disclaims liability for errors and omissions regarding the content thereof. No warranty of any kind, implied, expressed, or statutory, including but not limited to the warranties of non-infringement of third party rights, title, merchantability, fitness for a particular purpose or freedom from computer virus is given with respect to the contents of this document in hardcopy, electronic format or electronic links thereto. Reference made to any specific product, process, and service by Trade name, trade mark, manufacturer or another commercial commodity or entity are for informational purposes only and do not constitute or imply approval, endorsement or favouring by the NAMC. 13
Appendix A: Definitions of different price indices FRPI-Total includes price indices for machinery and implements, materials for fixed improvements and intermediate goods. The latter includes fertilizer, fuel, farm feed, animal health and crop protection, packing material, and maintenance and repairs. PPI-Total includes indices of producer prices of field crops, horticulture and animal production. PPI-Field crops include indices of producer prices for summer grains, winter grains, oilseeds, sugarcane, hay, dry beans, cotton and tobacco. PPI-Maize is the price index for producer prices for maize. PPI-Wheat is the price index for producer prices for wheat. Appendix B: Composition typical of production costs Table B.1 shows the different input cost components included in a typical input cost budget. The focus of this report is on the variable cost component only. Table B.1: Input cost components Variable cost Seed Fertilizer and lime Herbicides Insecticides and fungicides Fuel Maintenance and repairs Crop insurance Casual labour Marketing cost Drying and cleaning cost License and insurance Permanent labour Interest on production credit Contract work Other cost Capital cost Machinery and equipment: Depreciation Interest Fixed improvements: Interest Depreciation Repairs and maintenance 14
Table B.2 shows the different input cost components included in a typical input cost budget for wheat. The focus of this report is on the variable cost component only. Table B.2: Input cost components Variable cost Seed Fertilizer and lime Herbicides Insecticides and fungicides Fuel Maintenance and repairs Crop insurance Casual labour Marketing cost Drying and cleaning cost License and insurance Permanent labour Interest on production credit Contract work Other cost Capital cost Machinery and equipment: Depreciation Interest Fixed improvements: Interest Depreciation Repairs and maintenance Appendix C: Other cost & All other cost items The other cost category includes banking fees, printing and stationary, donations, water and electricity, telephone and auditing costs. The All other cost category includes the costs of crop insurance, marketing, drying and cleaning, license and insurance, and contract work. 15