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9/1/11

TRANSPORT COSTS AND AGRICULTURE

André Jooste30 August 2011

Portfolio Committee

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ON THE MENU

22

• Global perspective• Food prices and availability of food• Distribution modes• Transport costs• Toll fees• Concluding remarks

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Benchmarking: SA logistics costs vs the rest

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Putting things in context: GDP growth

Source: Barlow, 2011

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Putting things in context: Total logistics cost as % of GDP

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Logistics costs as a % of G

DP

Source: Based on CSIR, 2010

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Putting things in context: Logistics cost elements

Transportation costs highest cost element in South Africa

It is interesting to note that South Africa has the second lowest transportation cost percentage, after Europe.

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Logistics cost components as %

of total logistics cost

Source: Based on CSIR, 2010

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Putting things in context: Logistics cost elements

Source: Based on CSIR, 2010

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Mode as a %

of total ton-km

Road and rail are the predominant means of freight transport in South Africa.

It contribute 98% of all logistics costs.

The remaining 2% of costs is associated with other modes (0.3% with air, 0.29% with coastal shipping and 1.7% with pipelines).

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Putting things in context: Gross fixed capital formationLONG TERM Gross Fixed Capital Formation COMPARISON (GFCF)

Source: Barlow, 2011

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Food Prices and availability of food

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FAO – Monthly deflated food price indices

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Food Price Index

R/US$

FOOD PRICE INDEX

Percentage change

June 2010 to June 2011:

43%The exchange rate has been shielding

South Africa against global increases in

commodity and food prices

Global food prices

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CPI for different food groups and items (2008=100)

Stat SA 1111

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Price increase from January 2008 to July 2011 (All urban areas)

Electricity and other fuels – 123 %

Water and other services - 36 % Processed food products – 34%

Unprocessed food products – 20 %

Food prices in South Africa - CPI (continue)

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Food prices in South Africa - CPI

Food CPI for different provinces (2008=100)

Stats SA

Headline CPI and Food and Non-alcoholic Beverage CPI from (year-on-year, 2008=100)

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CPI

CPI

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Estimated consumption and cost of electricity for the primary agricultural sector

Year Average consumption

in GWh

Estimated consumption in

GWh

2006/07 5246

2007/08 5324.340

2008/09 5404.262

2009/10 5485.384

2010/11 5567.723

2011/12 5651.298

2012/13 5736.128

Source: Joubert, 20111313

Year Price of electricity in

GWh

Increase (%)

2009/10 R336,000 34.8

2010/11 R415,000 24.8

2011/12 R523,000 25.1

2012/13 R658,000 25.9

Year Price of electricity

Estimated usage in GWh

Total estimated cost

2009/10 R336,000 5485.384 R1 843 088 871

2010/11 R415,000 5567.723 R2 314 502 390

2011/12 R523,000 5651.298 R2 955 628 921

2012/13 R658,000 5736.128 R3 777 240 239

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Land use

Source: http://www.environment.gov.za. 2011

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• Major grain crops– Hectares down – but

yields up – productivity up

• Potential exist to increase domestic supply

– All sub-sectors• Area potential

– SA constrained …. – But ….

• Major grain crops– Hectares down – but yields up – productivity up

• Potential exist to increase domestic supply– All sub-sectors

• Area potential– SA constrained …. – But ….

• Arable land capable of sustaining intensive to moderately well adapted cultivation amounts to about 12.6 % of South Africa’s land

– Of this, only 2 % (2 446 million hectares) is prime agricultural land

– A further 11% can be addedWith constrained resources SA is doing well on the production front ..?!?..

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Volume of agricultural production

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000 ton

Source: DAFF, 2011

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Availability ….

National Food Self-Sufficiency Index (National Food Security)

Source: DAFF

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SSI

Wheat Maize (White & Yellow) PotatoesVegetables Sugar BeefMutton, goat's meat & lamb Pork ChickenEggs Deciduous and Subtropical fruit Citrus fruitsFresh milk Sunflower seed oil

CitrusSugar

Dec. & Subt. fruitMaize

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Putting things in context: Farming income vs costs

Source: DAFF, 2011 and own calculations

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R'million (2008 prices)

Gap between Gross and Net Farm income

increasing due to costs pressures

Long run Net Farm Income trends sideways, but

some improvement due

to commodity price boom

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Moving commodities and products SA: Rail vs Road

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Main Economic centres

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– Road and rail:• The percentage of grains

transported by rail declined from just over 80 % in 1985 to around 30 % in 2008.

• The percentage of grains transported by road increase from just below 20 % in 1985 to around 70 % in 2008.

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– Road and rail:• The percentage of grains transported by rail declined from just over 80 % in 1985 to around 30 % in 2008.• The percentage of grains transported by road increase from just below 20 % in 1985 to around 70 % in 2008.

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Modal distribution of road and rail freight in South Africa

Source: CSIR, 2009

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Modal distribution of road and rail freight in South Africa

Source: CSIR, 2010

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Rail vs. Road - 2010

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Rail vs. Road - 2010

In 2010, 80% of companies move less than 10% of their goods by rail. If adequate rail capacity were available, 46% of companies would move over 20% of their goods by rail.

Source: Barlow, 2010

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Rail vs. Road - 2011

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Rail vs. Road - 2011In 2011, 78% of companies moved less than 10% of their goods by rail. If adequate rail capacity were available, 17% of companies would move over 50% of their goods by rail.

Source: Barlow, 2010

Current freight moved by rail Potential freight that could be moved by rail

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Transport costs

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Primary and secondary sector logistics cost elements - 2008

Source: CSIR, 2008

The transport costs for the secondary sector is extremely high and if it is calculated as a percentage of value-add, it means that for every rand value added by this sector, 58% is incurred in transport costs. This is a massive burden on the global competitiveness of South Africa’s manufacturing sector.

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Road cost drivers - 2008

Source: CSIR, 2008

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Vehicle costs over time for different sized vehicles (2004–2010)

Max Braun Consulting Services, 2011.

2-axle vehicles: 6-axle vehicles: 7-axle vehicles:

Capital cost: 10.7 %Fixed cost: 16.3 %Running cost: 81.9

%

Capital cost: 33.9 %

Fixed cost: 36.7 %

Running cost: 105.8 %

Capital cost: 31.4 %

Fixed cost: 30.8 %Running cost:

117.9 %

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FUEL & OILPrice of oil2008: $97.552009: $61.802010: $79.44May 2009–May 2010: 32.1 %May 2010–May2011: 53.3 %

Price of petrol2008: R9.012009: R7.402010: R8.26May 2009–May 2010: 18.6 %May 2010–May2011: 17.5%

Price of diesel2008: R9.342009: R6.582010: R7.39May 2009–May 2010: 18.6 %May 2010–May2011: 20.8 %

R/$ exchange2008: R8.212009: R8.412010: R7.34 May 2009–May 2010: 9.0 %May 2010–May2011: 9.8 %

SAPIA, 2010

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COMPOSITION OF DIESEL PRICE (current c/l and % contribution) – August 2011

Department of Energy, 2011

The composition of the wholesale price of 0.05 % sulphur diesel in Gauteng, which is currently 930.45 cents per litre.

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 592.63 c/lt or 63.7 % of the wholesale price.

Other items listed are levies and taxes that currently amount to 337.82 c/lt or 36.3 % of the wholesale price.3131

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TOLL FEES

SANRAL, 2011

• 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 16 150km of

national roads.

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TOLL FEES ADDED COST TO AGRICULTURAL PRODUCTS

Own calculations based on SANRAL, 2011

• 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.

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TOLL FEES - CLASS 3 VEHICLE ONE WAY

Own calculations based on SANRAL, 2011

R570 in 2011; 38.7% increase from 2006 to 2011

R540.50 in 2011; 45.7% increase from 2006 to 2011

R504 in 2011; 41.6% increase from 2006 to 2011

R387 in 2011; 44.9% increase from 2006 to 2011

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TOLL FEES - CLASS 4 VEHICLE ONE WAY

Own calculations based on SANRAL, 20113535

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R815 in 2011; 39.3% increase from 2006 to 2011

R666 in 2011; 41% increase from 2006 to 2011

R704 in 2011; 41.4% increase from 2006 to 2011

R552 in 2011; 47.6% increase from 2006 to 2011

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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 .

SANRAL, 20113636

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GFIP ADDED COST TO AGRICULTURAL PRODUCTS

• Added transport cost for 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, 20113737

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GFIP TOLL FEES – CLASS C VEHICLE ONE WAY

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Rand per one way trip

R90.28 more

R120.36 without e-tag.

R186.50 more

R247.64 without e-tag.

Own calculations based on SANRAL, 20113838

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GFIP TOLL FEES – CLASS C VEHICLE – Polokwane to JHB Fresh produce market (return trip)

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Toll Plaza Existing Toll fees (Rand) GFIP (Rand)

  2010 2011

V.L.N. (Vehicle License Number) e-Tag

Current

Nyl 109.00 115.00

Kranskop 117.00 122.00

Carousel 119.00 123.00

Pumulani 26.00 27.00Total 371.00 387.00 510.28 384.26Current Toll fees per return trip 774.00

Additional Toll fees 510.28 384.26Tomatoes - Joburg Market   V.L.N. (Vehicle

License Numbere-Tag

4500 crates of tomatoes per truck kg 35,000

Toll fee cost per kg (current) R/kg 0.022

Additional cost per kg (GFIP) R/kg 0.015 0.011

Total toll cost per kg R/kg 0.037 0.033

Percentage increase   66% 50%

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• Different value chains will be affected differently by increasing logistical costs, e.g. wheat-to-bread vs maize-to-maize meal

• 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

• Different value chains will be affected differently by increasing logistical costs, e.g. wheat-to-bread vs maize-to-maize meal• 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

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Contact details:

Prof André Jooste

Tel: 012 341 1115

Fax: 086 580 4726

E-mail: andre@namc.co.za

Website: www.namc.co.za

Acknowledgements to other NAMC staff for assistance to prepare this presentation:

Corné Dempers, Dawie Maree

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.

Contact details:

Prof André Jooste

Tel: 012 341 1115

Fax: 086 580 4726

E-mail: andre@namc.co.za

Website: www.namc.co.za

Acknowledgements to other NAMC staff for assistance to prepare this presentation:

Corné Dempers, Dawie Maree

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.

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