INFLUENCE OF THE PROPOSED INCREASED ELECTRICITY TARIFFS ON THE AGRICULTURAL SECTOR IN THE NORTHERN CAPE Nicol Jansen Wessel van der Merwe

AGRICULTURE IS DEPENDANT ON ELECTRICITY Agriculture needs electricity. Agriculture needs sufficient electricity for expansion and development. Agriculture needs a constant supply of electricity for sustainable production. THEREFORE Agriculture supports Escoms capacity building programmes.

BUT Agriculture needs affordable electricity for sustainable production. What is Affordable ??????

CURRENT ELECTRICITY COSTS

WHEAT BUDGET INCOME

WHEAT BUDGET INPUT COSTS

NOTES REGARDING BUDGET In the calculation of this Budget, labour costs were not taken into account – wages/salaries are not yet paid. No provision was made for capital re- investment on property. No provision was made for capital re- investment on equipment. No provision was made for Owners/Managers Compensation.

TARIFF INCREASE OF 35 % per annum – YEAR 1

WHEAT BUDGET WITH 35 % INCREASE - INCOME YEAR 1

WHEAT BUDGET WITH 35 % INCREASE – INPUT COSTS YEAR 1

RECURRENT INCREASE OF 35% OVER 3 YEARS

TARIFF INCREASE OF 35 % per annum - YEAR 3

WHEAT BUDGET WITH 35 % INCREASE - INCOME YEAR 3

WHEAT BUDGET WITH 35 % INCREASE – INPUT COSTS YEAR 3

CURRENT ELECTRICITY COSTS

MAIZE BUDGET INCOME

MAIZE BUDGET INPUT COSTS

TARIFF INCREASE OF 35 % per annum - YEAR 3

MAIZE BUDGET INCOME

MAIZE BUDGET WITH 35 % INCREASE – INPUT COTS YEAR 3

EFFECT ON PERENNIAL CROPS Regardless of the produce, whether it is annual crops eg. wheat and maize or perennially crops eg. pecan nuts, grapes – they will use m 3 / ha water allocated as wheat and maize combined. The devastating effect of the proposed electricity increase stays the same on the production side.

EFFECT ON PERRENIAL CROPS Table grapes, wineries, fruit and vegetables etc. depend on cooling facilities that consume large quantities electricity and causes an even more devastating effect.

GENERAL THOUGHTS Agriculture are price takers – can not forward the increase of input costs to the consumer. Through globalization, commodity prices are determined internationally and the local farmer must compete on the international market. Highly subsidized products of European countries make local farmers compete unequally and cause local commodity prizes to fall below production costs.

The low energy costs of the past were one of the only benefits the South African farmer had to help compete in this unequal market. The sustainability of large irrigation developments were based on the current electricity costs plus inflation related increases and no provision were made for increases of 245 % in 3 years from now. The profitability of these large electricity users will come under enormous pressure and could end up uneconomical. A project to establish emergent farmers on 400 ha in the Hopetown area, was cancelled due to the increase and influence that the proposed electricity costs would have on the sustainability of the project. This project amounts to R100 million.

QUESTION Isnt Escom misusing his monopoly by raising capital in an unfair manner regarding his consumers ? Does the free market allow this way of gaining capital and what will happen with future profits out of extended electricity generating capacity ?

CONCLUSION The irrigation sector is at this stage extremely vulnerable due to low profitability and its survival is in the hands of Escom. I suggest they handle it with care.

ECONOMICAL BASIS OF THE NORTHERN CAPE The economy of a Province is the basis of the livelihood of its inhabitants. When there is an upset in a sector(s) – it will have a dramatic influence on the existence of the inhabitants

AGRICULTURE (PRIMARY SECTOR) DRIVER FOR NORTHERN CAPE ECONOMY Agro Industries depend on primary production and this includes : –Agricultural Businesses for provision of inputs –Abattoirs –Cooling facilities for export grapes –Dried Fruit processing –Ground and Peanuts processing –Vegetables packaging –Storage of Grains –Animal Feed Industries ALL THESE INDUSTRIES ARE DEPENDANT ON ELECTRICITY

IRRIGATION IN THE NORTHERN CAPE All irrigation in the Northern Cape is from rivers – no dry land farming Crops produced are :- –Wheat, barley, maize, soya beans, cotton, ground nuts, lusern, table grapes, wine grapes, dry grapes (raisons) nuts and vegetables. Millions of rands are invested in agricultural infrastructure – all dependant on electricity.

AGRICULTURAL INCOME IN THE NORTHERN CAPE Commercial agricultural income amounts to :- –40 % animal production = R milj –26 % fruit & vegetables = R milj –24 % crops = R milj –9 % aqua culture = R milj –1 % other (StatsSA 2007)

LAND REFORM Proposed transfer of 30 % land by 2014 to previously disadvantaged communities include irrigational land – proposed increase in electricity costs will be detrimental to the settlement of emergent farmers – they will definitely not be able to afford the electricity costs REASON THEREOF …

Emergent farmers do not have the Economy of Scale to cope with low profitability. Emergent farmers do not have enough knowlegde, experience or capital to absorb a drastic increase in electricity tariffs. The increase in electricity tariffs may have a drastic influence on the Dept of Agricultures CASP-programme

SOCIO - WELFARE The economic upset will have a huge influence on labour in the Northern Cape –Permanent labourers = –Temporary & seasonal labourers = »(StatsSA 2007) –This number excludes workers on contract Rural areas in the Northern Cape are directly linked to Agriculture – this includes commercial, emergent, communal and/or subsistence farming Job opportunities due to Agriculture are vital for the economic survival of poor households.

SUMMARY Agricultural growth in the Northern Cape is more rapidly than in the rest of South Africa – 6 % for the period »(NC Province 15 year review pg 47) Agriculture is the only sector that has the potential for job creation – the increase in electricity tariffs will influence the viability of agriculture (commercial and emergent) Agriculture in South Africa utilise 5 % of the electricity that are generated by Escom while this have a multiplication effect of 27 % on the economy.

THANK YOU