Electricity cost is a growing portion of agricultural input costs and a further 19.9% Eskom tariff increase could drive marginal farmers off their land, says Dr Requier Wait, head of trade and commerce at AgriSA.
Wait responded to the application Eskom submitted to energy regulator Nersa, for an average tariff increase of 19.9% for its direct customers from April 1 next year, and 27.5% for municipalities from July 1 next year.
AgriSA will also make a submission to Nersa and make a presentation at the upcoming public hearings. The deadline for written submissions is October 13.
Wait says the rate of cost increases in the agricultural sector outpaces the growth in revenue. Electricity represents a growing share.
In 2009/10 electricity was 4.1% of total input cost. This grew sharply to 5% in 2014/15. A slight drop in the next year to 4.9% and further drop in 2016/17 to 4.6% is probably the result of mitigation measures, says Wait. Farmers started managing their electricity demand and are including renewable sources in their energy mix.
Source: Department of Agriculture, Forestry and Fisheries
Wait says farmers who irrigate their crops – including grain, fruit and vegetable growers – are especially exposed to increases in electricity cost. The fruit and vegetable sector further has to maintain the cold chain in their packing and storage processes, which again relies on electricity.
Poultry and dairy farmers are also reliant on electricity.
With consumers being under pressure, food prices are not elastic enough for farmers to pass a 20% increase onto the market, he says.
Wait says farmers have limited room to mitigate big tariff increases, as the Eskom tariff structure provides for a large fixed cost for the availability of transmission and distribution lines. For many farmers the variable energy charge which they could potentially limit by reduced usage, is the smaller portion of their Eskom bill.
AgriSA is concerned that a sharp increase in electricity cost could be the last straw for marginal farmers, on the back of the debilitating drought in some parts of the country, Wait says.
Government support for farmers is extremely low compared with international norms, says Wait.
Source: Agricultural Policy Monitoring and Evaluation, OECD, 2017
(The Producer Support Estimate (PSE) is shown as a % of gross farm receipts. The OECD defines Agricultural support as “the annual monetary value of gross transfers to agriculture from consumers and taxpayers arising from government policies that support agriculture, regardless of their objectives and economic impacts”.)
Wait has expressed his concern over the downward spiral in Eskom’s tariff determination. In the application before Nersa, more than nine percentage points of the 19.9% increase is the result of a rebasing of sales volumes. Eskom’s electricity sales have been impacted as consumers reduced demand in the wake of load shedding and in an effort to save costs as tariffs increased.
Wait says the growing trend towards renewable energy is evident in the agricultural sector and will only contribute to the drop off in demand. The irony is that this will in turn lead to an increase in tariffs, as Eskom still has to cover its fixed costs.
He further expressed AgriSA’s concern with allegations of corruption and findings of irregular expenditure at Eskom and said the public has lost faith in Eskom and its ability to operate efficiently.