ADMINISTERED PRICES AND AGRICULTURE. Christo Joubert CEO Forum 09 May

Transcription

1 ADMINISTERED PRICES AND AGRICULTURE Christo Joubert CEO Forum 09 May

2 ON THE MENU Putting thing in context Administered and regulated prices: Some general trends Administered and regulated prices: Specifics Some industry examples Concluding remarks 2

3 Putting things in context 3

4 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-10 Apr-10 Jul-10 Oct-10 CPI Putting things in context: SA - CPI Headline CPI and Food and Non-alcoholic Beverage CPI from (year-on-year, 2008=100) Headline CPI Food and non-alcoholic beverages Inflation and food inflation in particular down significantly 0 Stat SA 4

5 Putting things in context: SA CPI (continue) CPI for different food groups and items (2008=100) Bread and cereals Oils and fats Meat Fish Milk, eggs and cheese Processed Unprocessed 80 MO MO MO MO MO MO MO MO MO Fruit Vegetables Sugar, sweets and deserts Other food Water and other services Electricity and other fuels MO MO MO MO MO MO MO MO MO

6 Putting things in context: Farming income vs costs R million - real values (2008=100) 1980/ / / / / / / / / / / / / / / Gap between Gross and Net Farm income increasing due to costs pressures Gross income Expenditure on intermediate goods and services Net farming income Long run Net Farm Income trends sideways, but some improvement due to commodity price boom DAFF and own calculations 6

7 % Average % contribution of individual variable cost items to total variable input cost - Maize 31% 23% 33% % / / / / / / / /09 Grain SA, 2010 Fertiliser & Lime Seed Herbicides All other Maintenance & Repairs Interest on production credit Insecticides and fungicides Fuel and labour 7

8 % of total variable costs Average % contribution of individual variable cost items to total variable input cost - Wheat 10.1% 26% / / / / / / / /09 21% 11.7% Grain SA, 2010 Fuel Fertiliser and lime Permanent labour Crop insurance Seed Weed control Interest on production credit Pest control Repairs and parts All other 8

9 R million - real values (2008 = 100) Putting things in context: Implications Ability to provide jobs Employment in this sector declined from over a million in 2000 to just over people employed in this sector in 2007 (Stats SA). Investment is compromised CAGR for fixed investment = -0.56% CAGR for tractors, machinery and implements = -2.08% Fixed improvements Tractors, machinery and implements 9

10 Putting things in context: Implications Contribution to rural development and poverty reduction OECD studies suggest that agricultural growth can be 4 to 6 times more effective in reducing poverty as compared with growth in the non-agricultural sector Continued growth in the agricultural sector is required to compliment non-agricultural sector growth Managing costs as a prominent management strategy is becoming increasingly difficult 10

11 Administered and regulated prices: Some general trends 11

12 Administered and regulated prices Administered price: The price of a product, set consciously by an individual producer or a group of producers and/or any price, which can be influenced by government, either directly or through one or other government agencies without reference to market forces. Examples: o o o o o o Sanitary fees Refuse removal Water & electricity Paraffin & fuel Public transport Telephone fees, postage Regulated prices: Those administered prices that are monitored and controlled by government policy. Prices may vary, depending on government s policy objective. Examples: o o o Water & electricity Paraffin & fuel Telephone fees, postage Stat SA,

13 CPI & Admin prices CPI & administered price index Administered price index CPI Administered price trends regularly above the CPI causing a cost squeeze Stat SA,

14 Percentage Regulated price index Regulated price index: 2007 Regulated price index: 2008 Regulated price index: 2009 Regulated price index: 2010 Fuel and electricity price hikes made a significant contribution Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Drop in the fuel price brought significant relief Stat SA 14

15 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Percentage Non-regulated price index Non-regulated prices which include refuse removal, public transport, television licence & school fees Non-regulated price index: 2007 Non-regulated price index: 2008 Non-regulated priceindex: 2009 Non-regulated price index: 2010 Non-regulated prices from July-Dec 2009 were high Non-regulated prices in 2010 were the highest. 4 Stat SA 15

16 Administered and regulated prices: Electricity 16

17 Percentage change Electricity tariff increase compared to CPI Tariff increase % CPI - regulated prices Tariff increase for 2008, 2009 and 2010 higher than the Headline CPI CPI higher than the electricity tariff increase 5 0 Source: Eskom,

18 Electricity usage in percentage by industry Residential 20% Commercial & public service 15% Agriculture/ Forestry 3% Transport 2% Other 2% The primary agricultural sector consumed 5931 GWh (3.0%) in The industrial sector consumes the biggest share with ( GWh) 58% of the total South African energy Industry 58% Source: IEA,

19 GWh Consumption for the primary agricultural sector in RSA Avg. growth = 1.5% Avg. consumption/yr = GWh Source: Department of Energy,

20 Estimated consumption and cost of electricity for the primary agricultural sector Year Average consumption in GWh 2006/ Estimated consumption in GWh 2007/ / / / / / Year Price of electricity in GWh Increase (%) 2009/10 R336, /11 R415, /12 R523, /13 R658, Year Price of electricity Estimated usage in GWh Total estimated cost 2009/10 R336, R /11 R415, R /12 R523, R /13 R658, R Source: Joubert,

21 Administered and regulated prices: Transport 21

22 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 US$/barrel R/litre FUEL & OIL 160 Crude oil Petrol 95 ULP Gauteng 140 Diesel 0.05% S Gauteng SAPIA, Price of oil 2008: $ : $ : $ : % : % Price of petrol 2008: R : R : R : % : % Price of diesel 2008: R : R : R : % : % R/$ exchange 2008: R : R : R : 2.35 % : %

23 COMPOSITION OF DIESEL PRICE (current c/l and % contribution) Slate levy, 0 cents or 0% Petroleum Products levy, 0.15 cents or 0% Contribution to the Basic Fuel Price, cents or 65% The composition of the wholesale price of 0.05 % sulphur diesel in Gauteng, which is currently (May 2011) cents per litre. RAF levy, 80 cents or 8% Customs & excise duty, 4 cents or 1% Fuel levy, cents or 17% IP Tracer levy, 0.01 cents or 0% Zone differential in Gauteng, 22.9 cents or 2% Department of Energy, 2011 Storage, handling & delivery costs, 11.4 cents or 1% Service cost recoveries, 3, 0% Wholesale margin, cents or 6% The Basic Fuel price (BFP) is the sum of the FOB value, freight, demurrage, insurance, ocean loss, cargo dues, coastal storage and stock financing. The BFP is currently c/lt or 65 % of the wholesale price. Other items listed are levies and taxes that currently amount to c/lt or 35% of the wholesale price. 23

24 TOLL FEES South African National Roads Agency Limited (SANRAL), an agency of the Ministry of Transport manage the national road network in SA. SANRAL has two revenue streams: From National Treasury for non-toll roads (81% of network) Selectively use the user-pay principle for toll road (19% of network) SANRAL manage approximately km of national roads. SANRAL,

25 TOLL FEES ADDED COST TO AGRICULTURAL PRODUCTS Scenario assumptions: One way trip for delivering of fresh produce to Tswane Fresh Produce Market. Calculations from Musina on N1 South, from Durban on N3 North, Nkomazi on N4 West and from Paarl on N1 North. Class 3 vehicle with 3 or 4 axle. Class 4 vehicle with 5 or more axle. Only mainline toll points, thus no ramps. Shortest route off mainline into Pretoria. Own calculations based on SANRAL,

26 Rand per one way trip TOLL FEES - CLASS 3 VEHICLE ONE WAY From Musina to Tswane FPM From Paarl to Tswane FPM From Durban to Tswane FPM From Nkomazi to Tswane FPM R551 in 2010; 34.1% increase from 2006 to 2010 R516 in 2010; 39.1% increase from 2006 to R487 in 2010; 36.8% increase from 2006 to R366 in 2010; 37.1% increase from 2006 to 2010 Own calculations based on SANRAL,

27 Rand per one way trip TOLL FEES - CLASS 4 VEHICLE ONE WAY From Musina to Tswane FPM From Paarl to Tswane FPM From Durban to Tswane FPM From Nkomazi to Tswane FPM R788 in 2010; 34.7% increase from 2006 to 2010 R681 in 2010; 36.7% increase from 2006 to R638 in 2010; 34.9% increase from 2006 to R522 in 2010; 39.4% increase from 2006 to 2010 Own calculations based on SANRAL,

28 NEW GAUTENG FREEWAY IMPROCEMENT PROJECT (GFIP) New classifications on vehicles: Class A1; Motorcycles, total vehicle length < 3.0m, width < 1.3m and height < 2.5m. Class A2; Light vehicles, vehicle length (excl trailer) < 6.0m and height (excl trailer) < 2.5m. Class B; Small heavy vehicles, total vehicle length, inclusive of any trailer >= 6m and < 12.5m or, total vehicle length, inclusive of any trailer < 6m and height >= 2.5m. Class C; Large heavy vehicles, total vehicle length, inclusive of any trailer >= 12.5m. Added transport cost for agricultural products. Own calculations based on SANRAL,

29 GFIP ADDED COST TO AGRICULTURAL PRODUCTS Scenario assumptions: One way trip for delivering of fresh produce to Tshwane Fresh Produce Market. Calculations from Durban on N3 North and from Paarl on N1 North. Class C vehicle to replace Class 4. Pay with E-tag to utilise discounts. Shortest route off mainline into Pretoria. Own calculations based on SANRAL,

30 Rand per one way trip GFIP TOLL FEES CLASS C VEHICLE ONE WAY From Musina to Tswane FPM From Paarl to Tswane FPM From Durban to Tswane FPM From Nkomazi to Tswane FPM R90.28 more R without e-tag R more R without e- tag. Own calculations based on SANRAL,

31 Rand Rand Rand Vehicle costs over time for different sized vehicles ( ) Capital Cost Running Cost Fixed Cost Capital Cost Running Cost Fixed Cost Capital Cost Running Cost Fixed Cost axle vehicles: 6-axle vehicles: 7-axle vehicles: Capital cost: 10.7 % Fixed cost: 16.3 % Capital cost: 33.9 % Fixed cost: 36.7 % Capital cost: 31.4 % Fixed cost: 30.8 % Running cost: 81.9 % Running cost: % Running cost: % 31 Max Braun Consulting Services, 2011.

32 Administered and regulated prices: Wages 32

33 2003/01/ /01/ /01/ /01/ /01/ /01/ /01/ /01/01 R/month R/hour MINIMUM WAGES Area A Rand/month Area A Rand/Hour Area B Rand/month Area B Rand/Hour Area A: 64.4% from base Area B: 102.4% from base Areas receive all the same rate % increase Department of Labour,

34 Some industry examples 34

35 Net Farm Income (R'000) Net farm income (million Rands) Percentage of variable cost Percentage of variable cost Effect of electricity costs on irrigation farming in the Northern Cape 20% 18% 16% 14% 12% 10% Maize Electricity as % of variable cost 20% 18% 16% 14% 12% 10% Wheat Electricity as % of variable cost 8% 6% 8% 6% Year Year NFI with tariff increase NFI without tariff increase Mean Min Max Mean (tariff) Min (tariff) Max (tariff) 35 NAMC and BFAP, 2010

36 % contribution to total cost of production Average % contribution of regulated fuel, labour and electricity cost to total production cost of animal feed 56% 54% Labour, fuel and electricity % contribution to Total Cost of Production, Sales, Admin and Transport 52% 50% 48% 46% 44% 42% Own calculations based on data from AFMA,

37 Cost per ton produced index 2001=100 Regulated fuel, labour and electricity cost for the production of a ton animal feed Labour Electricity Fuel for delivery 2008 to 2009 up 31.1% 2009 to 2010 up 24.8% 2008 to 2009 up 12.9% 2009 to 2010 up 6.8% to 2009 down 29.5% 2009 to 2010 up 12.2% Own calculations based on data from AFMA,

38 Cost per kg produced index 2008=100 Regulated fuel, labour and electricity cost for the production of a kilogram poultry Electricity Transport Water 2008 to 2009 up 28.2% 2009 to 2010 up 18.6% to 2009 up 16% 2009 to 2010 up 33.9% to 2009 up 6.2% 2009 to 2010 down 2.4% Own calculations based on data from role players in the industry,

39 Operational cost components of a typical service abattoir NAMC, Food Cost Review,

40 Percentage of Total Costs Costs in selling red meat at retail level Other Other consumables Animal Transportation Certification costs 40 Land costs (rental) Packaging costs Water and other utilities Electricity Labour costs 0 Retailer costs NAMC, Food Cost Review,

41 Contribution of fuel, electricity and water to the selling prices of processors of certain dairy products as in December Litre Pasteurised 1 Litre UHT 1 Kg Cheddar Milk Milk Cheese Percentage Percentage Percentage Diesel 3,00 3,00 1,34 to 1,90 Petrol 0,30 to 0,50 0,30 to 0,50 0,06 Electricity 1) 0,79 to 1,10 0,83 to 0,94 1,03 to 1,14 Water 0,10 to 0,3 0,16 to 0,3 0,14 to 0,45 1) Used in respect of all activities in the processing plant, storage and offices 41 SAMPRO, 2011

42 CONCLUDING REMARKS Administered/regulated prices makes a significant contribution to the over cost of producing agricultural commodities and food, i.e. increasing the cost of doing business and could also hamper new entrants. The significant increase in administered/regulated prices will affect: Agriculture s ability to produce enough and affordable food The sustainability of the sector since it directly and indirectly influences investment, the profitability and competitiveness of the sector The sector s ability to contribute towards job creation The sector s ability to contribute significantly towards rural development and alleviation of poverty ample examples globally Hence, rethink the current policy environment within the ambit of the role of agriculture 42

43 Thank you Contact details: Christo Joubert Tel: Website: Acknowledgements to other NAMC colleagues for assistance to prepare this presentation: Prof A Jooste, Corné Dempers, Londiwe Thabethe This presentation would not have been possible without the contributions from various organisations and individuals. The NAMC would like to thank you for your willingness to assist with this very important programme. 43