On 4^th June 2025, the South African government implemented an increase in the general fuel levy, raising petrol and diesel levies by 16 and 15 cents per litre (c/l), respectively. This means that the Fuel Levy in the price structures of petrol and diesel will increase to 415.00 c/l and 402 c/l, respectively. Given this adjustment in the fuel levy, the government intends to raise an additional R20 billion in additional tax revenue for the 2025/26 fiscal framework. While intended as a fiscally strategic alternative to a value-added tax (VAT) increase, the adjustment is bound to impose adverse cost pressures on the agricultural sector. Fuel constitutes about 13% of variable input costs in primary production and agri-logistics, particularly in an industry characterised by spatial dispersion and reliance on road transport. The timing of the fuel levy increase and the electricity tariff hikes curtail the benefit of concurrent global oil price reductions and a strengthening rand, thereby limiting the potential cost relief to producers.

Mechanisms on how the fuel levy is bound to affect the agricultural sector

The introduction of a fuel levy has a wide range of economic consequences that significantly impact the agricultural sector, given the sector’s inherent reliance on energy-intensive activities. The application of a fuel levy serves as a catalyst, triggering a cascade of economic repercussions that spread across the agriculture sector via different convoluted paths. This article examines the direct and indirect effects of fuel levies on agriculture and provided a summary of how fuel levies may affect the agricultural industry.

Although the agricultural sector benefits from a fuel rebate scheme that refunds a portion of the fuel levy (general fuel levy and the RAF levy) on diesel used for agricultural purposes, a fuel levy increase will negatively affect the agricultural sector by raising input costs and transportation expenses. The entire food value chain is more likely to be affected by the fuel levy increase. For instance, the farm workers will significantly feel the impact of fuel levy increase as their ability to commute daily to and from work in the farms will be affected by higher transportation costs, ultimately affecting efficiency and timely productivity.

Fuel levies have a cascading effect in agriculture by raising costs for agricultural inputs, transportation, and machinery operations, while also straining rural household incomes and changing market dynamics. The market supply of commodities requiring fuel-intensive production is more likely to be affected as producers are more likely to curtail production or migrate to less fuel-intensive practices. This will have significant impact on food availability and pricing, particularly for less-affordable households. In addition, the prices that customers pay for food are probably going to increase and the marginalised agrarian households may find it more difficult to afford basic food items due to rising prices.

To mitigate the adverse impacts of the recent fuel levy, increase on the agricultural sector, several targeted interventions should be considered. First, the government could expand and streamline the existing diesel fuel rebate system to ensure more inclusive access by smallholder and emerging farmers, who often lack the administrative capacity to claim these rebates. Second, investing in the development of rural transport infrastructure and promoting the use of alternative energy sources, such as solar-powered irrigation and electric farm machinery, is also highly recommended to reduce the sector’s dependency on fossil fuels. Third, investment in research and development to explore fuel efficient production techniques. Lastly, there is a need for collaborative engagement as per the Agriculture and Agro-processing Master Plan (AAMP) between the government, farmer organizations, and agribusiness stakeholders to design adaptive policies that mitigates the inflationary effects of fuel levies on food prices, ensuring food security for low-income households and the sustainability of the agricultural sector at large.

Conclusion

The increase in the fuel levy presents significant challenges for South Africa’s agricultural sector, exacerbating input costs, transportation expenses, and food prices. While the levy aims to bolster fiscal revenue, its timing and structure limit potential benefits from favourable global oil price trends. Mitigating these impacts requires a multi-faceted approach, including rebate expansions, infrastructure investment, and policy collaboration. Addressing these issues proactively will be crucial to safeguarding food security and supporting the resilience of the agricultural sector in the face of rising fuel costs.