If the National Energy Regulator of South Africa (Nersa) signs off on Eskom’s “stupid” request for a 32% tariff hike effective from April 2023, the country’s agricultural sector will not only substantially drown in costs but consumers will ultimately have to pay for this massive hike, especially when it comes to poultry, experts warn.
Amid load shedding, crumbling infrastructure and an inability to consistently provide power to Mzansi, Nersa is expected to take a decision before the end of this year on whether Eskom is entitled to recover 32% more revenue from electricity users in Mzansi.
For Astral Foods, one of Mzansi’s leading integrated poultry producers, the potential hike is of great concern. According to Astral Foods’ managing director: poultry commercial Frans van Heerden, energy costs are in the top five expenses of any poultry processor.
“If there is a 32% increase on [electricity], it will increase our costs substantially, and ultimately one cannot just absorb it, the consumer will have to pay for these big increases until there’s an alternative that is more cost-effective,” Van Heerden explains.
Consumers will be paying more for chicken
That’s not all. Van Heerden adds that load shedding has already impacted business badly and all processing facilities are feeling the burn.
“We work with a living animal, so you can’t process chicken that would need to be processed today and carry it over to tomorrow. We are recurring a lot of costs, we are working 24/7 as well as sorting and processing on weekends.”
The chickens are remaining on the farms longer than anticipated, which means they need more feed and become “bigger”, creating a bird voltage.
“For the last financial year, we recurred R150 million worth of costs due to load shedding and with the current state, it will only escalate,” says Van Heerden.
Astral Foods has tried to absorb the costs as far as it could, but the latest round of load shedding that started in September, has made it difficult to cover these costs internally.
“We have approached the market now with a price increase which includes the costs of load shedding. If we are successful in passing the increase, we stabilise our business and we can continue as is,” Van Heerden explains.
Astral Foods is looking at an R2.50-R3.50 per kg price increase and a third of the money will go towards load shedding.
Households are already struggling
With the impact of the potential increase likely to reverberate across South Africa, it is struggling households that will be forced to bear the brunt of such an increase, says Mervyn Abrahams, the programme coordinator at Pietermaritzburg Economic Justice & Dignity.
“It’s a stupid increase because energy is essential to all input costs. Everything that is produced in the South African economy involves to some extent, electricity,” Abrahams says.
He explains to Food For Mzansi that there are four categories which struggling households spend their minimum wages on. These are transport, electricity, debt services, and eventually what’s left of the money, on food.
Electricity and food
Abrahams further adds that the already struggling households in Mzansi will be affected in two ways. The first would be the electricity tariff if a low-income household uses 350kw of prepaid electricity. As it stands, this costs a household around R787.
“So already that R787 is 19.3% of the national minimum, which was measured in November of this year.”
The second impact is on food costs, because most of Mzansi’s staple food needs cooking such as maize meal, rice, and stew and these foods need some kind of electricity.
“[The potential increase] will force households to spend more on electricity, and of course, where do they take the money? From their food money to survive, while at the same time we are likely to see massive increases in food prices,” he says.
Abrahams believes that the country is already in a food crisis, and an increase in electricity tariffs can worsen the poverty levels.
Domino effect
Consumers will have less money because they have to pay Eskom more, which is like a domino effect.
“People will either disconnect themselves from the grid, meaning they will use alternative energy such as paraffin, and fire, which would increase petrol.”
The other side of the coin is that people will connect to the Eskom grid illegally, putting the power supplier in a more difficult space rather than making it affordable, he adds.
“This is a faulty business plan on behalf of Eskom, and they should make electricity affordable. Eskom should roll it out across the country and most people will be able to pay for it, and in that way, Eskom might even make more money,” Abrahams says.
‘Eskom taking it too far’
Meanwhile, according to Theo Boshoff, chief executive officer of the Agricultural Business Chamber (Agbiz), though the desire is to see a realistic increase that is affordable for consumers and agribusiness, Eskom is taking it too far.
“Obviously we would argue for something much lower, but looking at the long-term forecast, electricity is due to get more and more expensive,” says Boshoff.
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