Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.


African farmers reap little benefit from oil price drop

24 December 2014, 08:27

Buloba - From the coffee plantations of Uganda to the maize fields of Zambia, the collapse in world oil prices has so far brought few benefits for African farmers, with stubbornly high pump prices and voracious middle-men maintaining a squeeze on margins.

Only in South Africa, the continent's most sophisticated economy and one of its top agricultural producers, have fuel prices -- tightly regulated by the government -- come down enough to make a difference.

Elsewhere, many smallholders are unaware of the near-halving of crude oil prices on world markets since July, and even the better informed doubt any savings will filter through the web of agents and brokers that dominates much of African farming.

"If it's true fuel prices are falling, it is possible these traders will increase what they're paying us," said 73-year-old Ugandan Gladys Kavuma, who has been farming two acres of coffee in Buloba, 15 km (10 miles) west of Kampala, for four decades.

"But I doubt prices will ever improve. They will simply come up with another reason to keep prices low," she said, with a resigned shrug.

A typical Ugandan smallholder who has brought up five children on the back of her meagre coffee earnings, Kavuma's plight is replicated across sub-Saharan Africa, which relies on small farmers for 80 percent of its food.

In essence, weak government regulation means fuel importers and distributors can raise pump prices as crude oil rises, but drag their feet when it drops.

"We have heard and read that the cost of oil has dropped globally but unfortunately we are yet to feel the effects," said Jack Kneppers, a Dutch florist who employs 500 people at his Maridadi farm in Naivasha, northwest of Nairobi, Kenya.

"The price of fuel has dropped by a few shillings and this has very little if any effect on our cost of production."

Delayed drop

In countries such as Zambia, Africa's number two copper producer, oil's dramatic decline has been offset by currency weakness as foreign investors have retreated from frontier market debt and stocks due to concerns about global growth.

Furthermore, fuel imports are often paid for months in advance, meaning any benefit from the collapse in oil prices is delayed.

In its first price adjustment since April, Zambia dropped pump prices by 2.5 percent at the end of November based on fuel shipments bought in August, when crude was only just beginning its slump.

Over that time, the kwacha weakened 8 percent, eroding much of the impact of the oil price decline.

"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 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 annualised 100 million rand ($8.6 million).

Economists forecast that a litre of petrol will fall to 11.44 rand a litre next month, its lowest since August 2012 and 20 percent below a record 14.39 rand in April.

If sustained, such a decline means $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's good news all round."

In Nigeria, where agriculture accounts for 40 percent of GDP, a surprising statistic in Africa's biggest crude oil producer, 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 won't be so painful."

- Reuters


Read News24’s Comments Policy

Comment on this story
Comments have been closed for this article.

Read more from our Users

Submitted by
Shakila Alivitsa
4 ways to handle your cheating ma...

He is cheating. How do you handle him?

Submitted by
Shakila Alivitsa
Why do men choose second wives?

Why do men choose to have second wives?

Submitted by
Eugene Odanga
Wizkid set for twin Kenyan shows

Wizkid is back in Kenya. For two shows.

Submitted by
Eugene Odanga
Udada women's festival begins in ...

The Udada women's festival has arrived in Nairobi.

Submitted by
Uhuru pardons 2747 death row conv...

President Uhuru Kenyatta has pardoned a number of death row convicts, sending them to life sentences instead. Read more...

Submitted by
Eugene Odanga
WATCH: Kaka Sungura arrested in t...

Was Kaka Sungura arrested in town?