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T RA D E N E W S
Figure 2: Parity prices vs R/$ exchange rate (US yellow maize,
Randfontein)
SOURCE: GRAIN SA
Figure 3: Price cost squeeze relating to agriculture (Combined
agriculture index vs Intermediate agricultural inputs)
SOURCE: DAFF
January 2016, as illustrated in Figure 1. This depreciation of the rand will result in several losses as well
as gains in the agricultural sector, and will have a
huge impact on the import and export industries.
In the short run a depreciation in the exchange rate
will support commodity prices due to increasing parity prices. This is reflected in Figure 2.
In the long run the exchange rate has an impact
on agricultural inputs. Inputs such as fertilisers,
chemicals, diesel and machinery increase with the
depreciation of the rand. This is mainly because most
of these products are imported or the active ingredients in the products are imported. This puts pressure
on producers because producers are already in a price
cost squeeze scenario (Figure 3).
The price cost squeeze indicates that the magnitude of the commodity prices are outweighed by the
increase in costs. This means that in the long run
agriculture as a whole will lose, due to the depreciation of the rand.
In a drought year, when above average imports of
grains would be needed to meet the demand for local
consumption, the exchange rate might even have a
bigger influence on the agricultural sector as a whole,
as well as the economy. A depreciation of the rand
will lead to more expensive imports, which will cost
the economy of the country on a huge scale.
SUMMARY
• Exchange rate depreciated substantially in the last
year.
• The depreciation of the exchange rate supports
commodity prices due to higher parity prices.
• Prices of agricultural inputs such as fertilisers,
pesticides, etc. also increased because most of the
active ingredients or products are imported.
• The combination of the ouput (commodity prices) vs input (agricultural costs) is negative for agric [ \