Fuel cost climb puts pressure on farmers

Farmers, poor households and transporters are set to feel the pinch after the prices of diesel and kerosene jumped substantially on rising costs in the international crude market.

The price of diesel climbed by the largest margin since July in the latest review by the Energy and Petroleum Regulatory Authority (EPRA), putting pressure on farmers and transporters already hit by the economic downturn due to the coronavirus pandemic.

Consumers will pay Sh4.57 more for a litre of diesel— the highest increment in about six months.

Kerosene users will also not have it easy as the price of the commodity climbed by Sh3.56 per litre — the largest margin since August 2020.

The increase in diesel price at this time of the year deals a blow to farmers who are set to commence land preparation in readiness for a new planting season that will commence next month and coincide with the traditional March-April-May main rain season.

Expensive diesel raises the cost of running agricultural machinery such as tractors.

Kenya’s economy also largely relies on diesel for transportation and power generation, with the price increase expected to impact on the cost of living for households.

The jump in kerosene price is expected to hit poor households hard, with a higher number of them having lowered their reliance on cooking gas, according to data from EPRA.

The poor also use kerosene for lighting. Cooking gas consumption data covering the period when Kenya began implementing measures to curb Covid-19 shows that the volumes dropped while that of kerosene rose.

For example, data shows that consumers took up 23,327 tonnes of cooking gas in June 2020 compared to May’s 30,860 tonnes. The 24 percent drop coincided with a double rise in kerosene use in June to 29.4 million litres from the 15.4 million litres in May.

The country’s overall inflation rose to 5.62 percent in December from 5.33 percent in November although fuel inflation, which was the main driver of overall inflation in the third quarter of the year, eased in quarter four, dropping to 11.3 per cent in December from 12.1 per cent in October.

Crude oil prices had been on the rise since last month, with the Brent crude averaging $49.99 per barrel, buoyed by hopes that more countries would roll out a coronavirus vaccine, return to normalcy and accelerate global oil demand recovery.

It had been anticipated that the rise would push the Petroleum Department to activate the use of the petroleum development levy which is meant to cushion consumers from volatility in fuel prices,

Petroleum Principal Secretary Andrew Kamau, who had in the past alluded to the use of the levy to cushion fuel prices after it was increased thirteen-fold in July to Sh5.40 per litre, could not be reached for comment.

Sources at the energy regulator, however, indicated that the levy had not been used even as exact guidelines on when and under what circumstances it would be used remained a mystery.

Motorists contribute at about Sh2 billion per month.

The subsidiary legislation to manage the Petroleum Development Levy Fund had given the Petroleum Cabinet secretary powers to cut fuel prices and cushion motorists from sharp spikes in the cost of the product from a subsidy fund.

“The Cabinet Secretary may by writing to the administrator, request for a draw down from the Petroleum Development Levy Fund to stabilise local petroleum prices where he deems necessary,” the subsidiary legislation, presented to the National Assembly’s committee on Delegated Legislation in August 2020, stated.

“The levy shall also be used for matters relating to development of the oil industry, including to stabilise local petroleum prices.”

Under the scheme, oil marketers would be paid the equivalent of the subsidy from the levy, which was first created in 1991.