A convergence of geopolitical tensions, higher energy prices and climate risks is reshaping the outlook for agricultural producers, exporters and agribusinesses, thereby creating conditions that will eventually weigh on global agri‑food systems, says trade credit risk management company Coface.

Producer price inflation, which had eased prior to the geopolitical shock, is now likely to reverse. Rising fertiliser, fuel and intermediate input costs are expected to place renewed pressure on farm margins and profitability.

The most immediate transmission channels are energy and fertilisers. Disruptions to oil flows have resulted in an imbalance between global supply and demand, pushing prices higher and keeping them there, says Coface Africa chief economist Aroni Chaudhuri.

Unlike the previous shock on oil prices, where volatility was largely driven by risk sentiment, the current environment is characterised by physical shortages in oil markets. This distinction is critical for agriculture, as the sector is heavily exposed to fuel‑intensive production and transport.

Higher oil prices raise farming costs directly through mechanisation and logistics, and indirectly through inflation across the broader economy. For emerging markets such as South Africa, these price pressures are especially significant, he says.

Additionally, disruptions to chemical supply chains are adding another layer of complexity. Fertiliser markets, while currently supported by existing inventories, are already experiencing upward price pressure.

The risks here are less about immediate shortages and more about future accessibility and affordability, particularly once large importing nations return to the market to rebuild stocks.

For South African buyers, this creates uncertainty around input costs at a time when margins are already under pressure. Even modest fertiliser price increases can significantly affect cash flow, especially for smaller and mid‑sized operators within the agricultural value chain, Chaudhuri says.

“South Africa’s vulnerability to global shocks is primarily price‑driven. As a net importer of refined petroleum products, the country remains highly sensitive to sustained increases in global oil prices.

“However, its level of income and market access should allow it to secure supply, albeit at higher cost,” he explains.

Higher fuel prices feed into inflation, particularly through transport, which constrains the scope for monetary easing.

Low inflation had been an important driver of growth momentum in South Africa, and renewed price pressure limits the ability of the South African Reserve Bank to support demand through monetary policy.

Tighter financial conditions mean that credit availability and borrowing costs are likely to remain elevated, thereby affecting investment and working capital across the agricultural sector, he notes.

WEATHER PATTERNS
Forecasts point to a high probability of El Niño conditions re‑emerging later this year, bringing warmer and drier weather patterns to Southern Africa.

Historically, El Niño episodes have coincided with lower agricultural output in South Africa, particularly during the summer planting season. While current harvest expectations for this year remain favourable owing to adequate rainfall in the past season, the outlook becomes more challenging beyond that.

“The greatest risk lies in the possibility of a prolonged and/or intensified El Niño, which would deepen pressure on water availability, crop yields and overall production levels heading into 2027,” says Chaudhuri.

However, not all subsectors are affected equally. Crop production has benefited from strong harvests in recent years, keeping cereal supplies ample and prices relatively subdued.

Demand for cereals remains stable, driven primarily by demographic factors rather than cyclical swings, he says.

By comparison, the livestock sector continues to face pressure from disease outbreaks, biosecurity concerns and rising feed costs.

Combined with higher input prices, this divergence highlights the uneven nature of risk across the agricultural landscape.

Meanwhile, South Africa's agriculture remains fundamentally resilient. Strong institutional frameworks, improving yields over time and access to capital among larger producers provide important buffers against external shocks, says Chaudhuri.

However, the balance of risks has clearly shifted, with the convergence of global conflict, higher financing costs and climate uncertainty introducing a more demanding operating environment, particularly towards the end of this year and into 2027.

“The key challenge for the sector is no longer simply growth, but managing volatility, protecting cash flow and navigating risk across increasingly complex value chains,” he says.