Load shedding: ‘We are in big trouble with food prices’ – economist

We are in big trouble with load shedding. Farmers cannot produce enough food, which will lead to higher food prices, which will in turn push up inflation that will see us paying higher interest for longer, says a well-known economist.

Prof Jannie Rossouw, visiting professor at Wits Business School, says he is extremely worried about the impact of the current bout of load shedding.

“I suspect there is a plan in government to cause such a public outcry about the lack of electricity that people will actually welcome the Karpowerships and not ask any questions,” he says.

If the Karpowerships do end up supplying the country with sufficient electricity, Rossouw says South Africans must then insist that the contract is published as he suspects that someone in government will benefit greatly.

“Why do we send a delegation to Davos to the World Economic Forum if we cannot guarantee power? It does not mean much that the president stayed behind because he cannot take any decisions.”

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Less food, higher food prices

Bennie van Zyl, general manager agricultural organisation TLU SA, agrees that less production will cause food prices to increase that will in turn push up inflation.

Load shedding poses the biggest problem for farmers who use irrigation and for those who have to keep their products in the cold chain.

“Agriculture is a complex and diverse industry. Farmers who use irrigation cannot have load shedding interrupt irrigation cycles as this interferes with the biological growth phase which cannot be caught up later.”

A potato farmer, for example, lays out R260 000 per hectare to irrigate the field. If the irrigation cycle is interrupted, he cannot even break even and if he has 7 hectares under irrigation, it means he sits with R1 million of debt and no product.

Farmers who cannot keep up the cold chain also suffer because they have to discard produce, such as fruit, vegetables, milk and meat that are not kept at a cold enough temperature. In addition, farmers have to irrigate fields where they grow feed for winter.

Van Zyl says all this means that there will not be enough food and that the market forces of supply and demand will cause food prices to increase, which will lead to an increase in inflation.

“Consumer food price inflation is already elevated, estimated to have averaged around 9% in 2022 (from 6,5% in 2021), driven mainly by global agricultural commodity challenges.”

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No issue more urgent than energy crisis

Wandile Sihlobo, chief economist at the Agricultural Business Chamber (Agbiz), says there is probably no issue more urgent than the worsening energy crisis for South Africa’s agriculture and agribusinesses.

“Farmers who rely on irrigation have all expressed concerns that persistent load shedding negatively affects production. In crucial field crops, roughly 20% of maize, 15% of soybean, 34% of sugarcane and nearly half of the wheat production are produced under irrigation. Fruits and vegetables also heavily rely on irrigation and thus, face similar challenges.”

There are also concerns that load shedding beyond stage 2 makes operations and planning difficult in the production of red meat, poultry, pork, wool and dairy, as these industries all require continuous power for their activities.

“Agribusinesses face similar challenges in various downstream processing activities, such as milling, baking, abattoirs, wine processing, packaging and animal vaccine production. Exporting agribusinesses, especially those with products susceptible to delays, such as fruits, red meat and wine, are also worried about the port activities, which fortunately have not been primarily affected.”

Sihlobo says the financial impact on farmers and agribusinesses or food security is not yet clear and will be difficult to quantify. There are also concerns about food security as the effect of load shedding will probably show in the volumes of products to be harvested or produced later in the coming months due to the time lag in agricultural production stages.

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Less food production, less jobs

He also points out that jobs will be affected if businesses are severely affected.

“There is a real danger that some farmers could lose their crops, which would impact the farms’ financial future and likely negatively impact agricultural financiers.”

Although the TLU and other organisations have asked for government to exempt them from load shedding, Sihlobo says total exemption of the sector will be near impossible as many food processing companies and farms are technically linked to other localities and cannot be easily insulated from load shedding.

“With Eskom’s challenges likely to be with us for some time, reducing reliance on Eskom will probably be a strategic business survival consideration for many businesses, although costly. Investing in alternative power sources will have to be prioritised where financial resources permit.”

While the financial commitments associated with this may be quite large and businesses may also encounter regulatory hurdles, he says the department of agriculture, land reform and rural development should help to address them within their available resources and means.

“One possible step the department can consider is to streamline the application processes under the Subdivision of Agricultural Land Act (SALA) and Spatial Planning and Land Use Management Act (SPLUMA) to authorise land use for energy generation.”

Government can also consider subsidies for solar panels and battery storage on top of relaxing these requirements to enable farmers to go off grid and generate enough power for their systems, he says.