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Consumers are likely to be hit hard by rising food costs after Eskom was granted above-inflation price increases by the energy regulator for the next three years.
Consumers are likely to be hit hard by rising food costs after Eskom was granted above-inflation price increases by the energy regulator for the next three years.

More pain for consumers as food prices, farmers to be affected by electricity hike

ECONOMIC NEWS

By Tehillah Niselow - Mar 11th, 08:55

Consumers are likely to be hit hard by rising food costs after Eskom was granted above-inflation price increases by the energy regulator for the next three years, according to FNB.  

Head of information and marketing for FNB Agribusiness Dawie Maree said the electricity price hikes of 9.41%, 8.1% and 5.2% over the next three financial years, will push up the cost of production as electricity is one of the highest input costs for irrigation farmers.

“From a primary agriculture perspective, irrigation, fruit and vegetable farmers will particularly be impacted as they rely heavily on electricity for production. Farmers, just like consumers on the other end of the supply chain, are price takers,” Maree said.

Maree added that the food processing sector is likely to come under pressure with the above inflation electricity cost hikes being passed on to consumers.

The Consumer Price Index (CPI) was recorded at 4% in January. Consumers are already tightening their belts with a 74c/l increase in the petrol price increase and a 91 c/l rise in diesel prices in March.

Energy alternatives

“The current power supply challenges coupled with ongoing tariff increases present a compelling case for farmers to consider investing in renewable energy alternatives to ensure the sustainability of the sector,” Maree said. Business Unity SA (Busa) also warned that the electricity price hikes granted by Nersa would likely see a further decline in Eskom’s customer base, as users seek more reliable and cost-effective alternatives.

The increases for the next three years are on top of the 4.41% hike for the next three years, approved by Nersa in October, on Eskom's Regulatory Clearing Account (RCA) application. The RCA refers to funds Eskom can recover due to an electricity shortfall or an escalation in operating costs.

Eskom will also be allowed to "claw back" R3.86bn from its RCA for 2017/2018, Nersa said, and further details of this will be announced soon.

‘Workers reeling’

The Congress of South African Trade Unions (Cosatu) said that workers are reeling from the rising costs of fuel, food and other necessities, and Eskom should first develop a turnaround strategy before any price hikes take effect.

“This tariff increase will have serious consequences for the economy. Increases in the cost of living will leave consumers with less disposable income, which will put the economy further in trouble,” Cosatu spokesperson Sizwe Pamla said.

The South African Federation of Trade Unions (Saftu) also slammed Nersa’s decision saying there had been a 400% increase in electricity tariffs over the last 10 years and this latest round of increases “represent yet another assault of the living standards of all South Africans, but more so the poor and the working class”.

“We demand that government should dismiss the current CEO [Phakamani Hadebe] and the entire board and dismantle the task team it has put above the board. Their appointment has made no difference whatsoever. We demand that a new CEO with necessary experience, skills and expertise supported by a new board in which labour and civil society will be represented be put in place,” Saftu said in a statement.

Eskom’s application for between 15%-17% tariff increases for the next three years was largely opposed by business, labour and civil society in written and oral submissions to Nersa.
 

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