At a time when the sustainability of the entire South African potato value chain is at risk, industry players say it remains an uphill battle for potato growers in the country.
According to Potato South Africa CEO Willie Jacobs, it is not only potato producers who are impacted by load shedding but the entire value chain. “Should there be a breakdown in the local supply of fresh produce, all role players will be affected.”
Farmers are struggling to irrigate their potato fields efficiently, resulting in reduced production due to the decreasing quality of the produce. Potato SA claims that fresh produce markets, where 60% of all potatoes are sold in the informal sector, are also affected.
Furthermore, the frozen French fries industry is also under strain due to rolling blackouts. According to Jacobs, the frozen chip factories raised their concerns with Eskom and the relevant local governments, pertinently noting that this is a challenge in the government space and outside the control of the industry.
“Alternative power supply such as generators to provide reasonable lighting has a further implication due to the rising cost of diesel. The above are but a few examples of how load shedding is affecting the local potato sector with an increase in cost to every role player in the value chain ending in high prices for an already cash-strapped consumer,” said Jacobs.
“Although power supply disruptions are a common denominating challenge, there are also other challenges that the industry has to face.”
Resilience of SA’s potato farmers
Looking at the last three decades, the total potato production has doubled from 1.3 million tons to 2.6 million tons. At the same time, the area on which potatoes are produced has reduced from 62 000 hectares in 1990 to the current 52 355 hectares.
As a result, yields increased from 20 tonnes per hectare to 50 tonnes per hectare. This makes South Africa one of the most effective potato production countries in the world, which we do without the subsidy payments that European farmers receive.
“This speaks to the resilience of the local farmers who are delivering potatoes despite very challenging circumstances including numerous lapses in their ability to irrigate crops due to damaging power supply disruptions,” Jacobs said.
Increased interest rates add more burden
Meanwhile, a senior agricultural economist at FNB Agribusiness Paul Makube, believes the South African Reserve Bank’s (SARB) repo rate hike to 7.25% dampens Mzansi’s agri outlook in already volatile operating conditions.
“The higher interest rates and elevated inflation erode farm profit margins and liquidity which may constrain farmers’ ability to service debt and further limit production expansion,” Makube said. “While commodity prices, in general, have been relatively high, input costs have also risen sharply and quickly by double-digit numbers thus squeezing margins.”
Load shedding, he added, has caused havoc in the agriculture sector and any further deterioration in electricity supply in the medium to long term may necessitate production cutbacks and consequently a domestic supply crunch for certain commodities such as poultry.
Paying the price
According to Makube, the domestic supply deficit is normally met through imports, however, they may also come at a huge cost given the weaker rand exchange rate and the avian-induced strength in international prices.
This simply means that the overall impact is margin compression in the agriculture sector and farmers may struggle to reach a break-even point or even post negative margins which may necessitate debt restructuring and more indebtedness.
“While higher commodity prices have previously countered the impact of rising interest rates on land values, the situation might turn negative should interest rates remain elevated for longer in a high input cost and the disruptive (power failures, infrastructure decay) operating environment,” said Makube.
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