The impact of load shedding on the agriculture sector

The National Energy Regulator of South Africa (NERSA) has agreed to increase electricity prices by 18.65%, effective from 1 April 2023. In doing so, it partly goes along with the wishes of ESKOM, which had asked for a price hike of as much as 32%. Earlier, opposition parties asked the governing ANC party to vote against a new price hike by ESKOM. They wonder aloud whether a new price hike is justified, when consumers and businesses are already struggling so much with the recent price increase.

Consequences

Agreement on energy price hike

Effects on the agriculture sector

The agriculture sector in particular is concerned about the recent plans. This is due to the substantial increase in energy prices, which comes on top of the already increased prices over the past few years. The agriculture sector is asking for support from the government to continue to guarantee the supply of food to supermarkets. Moreover, the agriculture sector is already having to take hefty hits due to the continuous load shedding faced in South Africa.

In the meantime, the sector is facing Stage 6 of load shedding, which means 5000 MW to 6000 MW of power must be shed in order to prevent the national grid from collapsing. Many small and medium-sized farms are about to lose a large part of their crops and harvest, which is a direct consequence of load shedding. This is because of the irrigation that requires electricity, and load shedding which is causing large intervals of no-power. A well known issue to crop irrigation.

Costs

Price increase on top of price increases

Load shedding is not the only problem the agricultural sector will have to face. For instance, basic necessities like diesel and oil have become more expensive in the past year, as did food packaging materials. In fact, the price rise caused costs to double across the board. The 18,65% price hike for electricity might as well be another downer for a sector already in heavy weather. Over the last couple of months, even larger commercial companies have sounded the alarm about rising costs, further highlighting the urgency within the sector. They also see problems emerging that make healthy operations even more difficult.

Diesel rebates

Possible solution in expanding diesel rebates

For those operators who can afford it, a diesel generator is a possible solution to mitigate the effects of load shedding. However, the number of companies that can still buy enough diesel to keep generators running is declining. For this reason, Christo van der Rheede (CEO of Agri SA) recently advocated extending diesel rebates. That way, more agricultural companies can buy diesel for power generation. He also wants the government to treat food supply as essential once again, as it did during the corona pandemic. This creates a back-up for farmers that would be financially supported, while the government will guarantee sufficient income.

Subsidy

Task team to monitor impact load shedding on agricultural sector

South Africa’s current government have announced the establishment of a task team. The team will consist of delegates from the government, the Agricultural sector and also the energy sector. They are to monitor the effects of load shedding and its impact on the agricultural sector in order to ensure the focus on food security on a daily basis. Solutions to financially support the sector are also being sought.

Subsidy on solar panels for farmers

One of the solutions mentioned within the agricultural sector is offering subsidies on solar panels. This would allow farmers to add to their already growing reliance on energy production. The South African government could partially fund the installation of solar panels, thus providing breathing space for consumers and businesses working in the agricultural sector. With the subsidies, companies will be able to invest in a commercial solar purchase.

Product chain

Problems within the product chain

The problems faced by farmers are currently working their way down the entire chain. For example, consumers are seeing their products increase in price. According to Christo van der Rheede, however, farmers see little to nothing from those price increases. Not only is this due to load shedding or a rise in diesel costs, but the price increases farmers face cannot be passed on to exports. The European market simply refuses to pay more for the same product, leaving farmers in South Africa facing lost profits.

Farmers therefore see nothing of the rising prices that consumers – who are also already facing their own rising prices – pay in the supermarket at the end of the day. Although commercial companies have stepped up their game recently, there are still many challenges to overcome. The biggest challenge won’t be delivering the products, but keeping them affordable for the people of South Africa.

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