By Amy Grundling
The photo is provided by Weebly, 2020
Increase in Fuel Prices
After two months of fuel price reductions due to the decrease in global demand, June is expected to burden South Africans even further during the uncertain times. On Wednesday, 3 June 2020, 93 and 95 octane petrol increased by R1,18/ℓ; 0,05% diesel by 22c/ℓ; 0,005% diesel by 21c/ℓ; and Illuminating paraffin by 40c/ℓ. According to the Department of Mineral Resources and Energy, the prices of petrol will still be R2.63/ℓ lower than it was before the start of lockdown in March.
The fuel price is comprised out of four main elements namely, the General Fuel Levy (GFL), Road Accident Fund (RAF) Levy, Basis Fuel Price and retail margins. Before the lockdown, the combination of GFL and RAF levies was R5,84, which is approximately 50% of the fuel price. The new fuel prices that came into effect on 3 June, will only comprise out of a lower percentage levy, weighting 44%.
The main reason for the increase in fuel prices is that the Organization of the Petroleum Exporting Countries (OPEC), Russia and other oil-producing countries agreed to reduce production by 10 million barrels per day. The reduction in production will decrease global oil supply with 10%. Fuel prices will remain volatile in the short-run but will stabilize in the long-run as global economies recover.
The Effect on Food Security
Despite diesel accounting, approximately 11% of the total grain production, the small increase in diesel prices will not affect food production drastically. Many of the grain producers are currently in harvest, therefore, they would have already bought fuel in bulk before the fuel price increase.
Even though the increase in diesel prices will not affect food production significantly, the increase will affect South Africa’s food security. Given that 70% of South Africa’s food being transported by road, the increase in fuel prices will have a negative effect on food inflation. It is estimated that 50% of South Africa’s population is food insecure. The majority of the food insecure population in the North West (36,6%), Northern Cape (32,3%), Mpumalanga (28,4%) and the Eastern Cape (25,4%).
Food insecurity has been amplified by the growing unemployment and poverty rates, caused by the economic instability triggered by the worldwide pandemic. The South African Social Security Agency (Sassa) has reported that the respondents who receive no income, has increased from 5,2% before lockdown to 15,4% and is expected to increase even further.
In conclusion, to ensure food security the government and the public sector should stimulate economic growth and job creation. In efforts to decrease the negative impact of the economic instability, the government can stabilize the volatile fuel prices in the short-run. Fuel prices can be stabilized by decreasing the GFL and RAF levies.