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March 31, 2010

Electricity tariff hike shock for South African farmers

by Drieka Burger

Food security and farmers’ profit margins could come under severe strain as electricity tariffs are hiked by around 25% per year for the next three years.
Cecilia Khuzwayo, chairperson of the National Energy Regulator of South Africa (Nersa) announced at the end of February that electricity tariffs would rise by 24,8% this year, 25,8% in 2011 and 25,9% in 2012.

This is substantially lower than the 35% per year for three years for which Eskom applied, but still enough to deal a big blow to the economy. The combined effect of the increase will be around 97% over the three years. This year’s increase will take effect on 1 April.

In January, Free State Agriculture president Louw Steytler said in a presentation to Nersa that higher electricity costs would influence 45% of the country’s food production directly. Electricity already accounts for 8% of an irrigation farmer’s production budget to plant maize.

Ben Marais, president of TAU SA, slammed the announcement. He said the fact that an increase of 35% has been lowered to “only 24,8%, is psychological fraud, and in no way regarded as a relief.” He said the increase was far above the inflation rate and that this would lead to inflation rising still further.

“For farmers, this is part of a nearly unbearable package of increases – 24,8% on electricity, 25,5c/â„“ more levies on fuel, and also the increase in toll tariffs from March 1. This will also have an impact on farmers who need to take their products to markets, as they have to use toll roads because of the decline of secondary roads,” he said.

Further bad news is that the announcement has probably closed the door to any further interest-rate cuts by the Reserve Bank. The bank has been factoring an increase of 25% into its inflation forecasts, which it uses in making decisions about interest rates.

An electricity price hike of less than 25% might have caused the Bank to adjust its inflation forecast downward, opening up the possibility for a further interest-rate cut of half a percentage point at the Reserve Bank’s March meeting.

Farmers Weekly

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