File picture: David Ritchie/African News Agency/ANA
JOHANNESBURG - South African commercial farmers have warned that of a probable spike in food prices despite the easing of inflation to the lowest rate since February 2011.

The farmers this week warned that the planned clawback of nearly R66 billion by Eskom for the 2014/15 to 2016/17 financial years could escalate food prices as electricity costs accounted for 5 percent of total variable cost.

Agri Eastern Cape chairman Wayman Kritzinger said that an electricity tariff increase would push up production costs and affect irrigation farmers.

Kritzinger said 35 percent of wheat was produced on irrigated land, while 30 percent and 25 percent of sugar was produced on irrigated land. 18 percent of South Africa’s maize production was under irrigation. “25 percent of the country’s food is produced by irrigation-reliant and energy intensive industries,” he said.

The warning come as Statistics South Africa (Stats SA) this week said that the consumer price index (CPI) eased to 3.8 percent year-on-year last month from a 4 percent in February - moving further below the SA Reserve Bank’s midpoint target range of 3 to 6 percent.

This as the National Energy Regulator of South Africa (Nersa) is holding public hearings on Eskom’s application to recoup the money.

NKC Africa Economics said the inflation moderation could be temporary as the impact of this month’s one percentage point increase in the Value-Added Tax (VAT) and a lower maize crop would push food prices higher in the coming months.

NKC analyst Elize Kruger said the VAT increase particularly impacted on what could have been a general disinflationary period for the rest of the year.

“Limited demand pressures, given sluggish domestic demand conditions, moderating food prices and the impact of the recent notable appreciation in the rand exchange rate are important drivers of the moderate price environment evident,” Kruger said.

Clyde Mallinson of Energy Expert Coalition - a collection of energy experts - said Nersa should reject Eskom’s application and called for fossil fuel-derived electricity generation to renewable energy.

Mallinson said rapid technology advances and an abundance of natural renewable energy resources had enabled the transition to lower electricity prices.

“Changing demand patterns require maximum system design flexibility to be properly handled and managed,” Mallinson said.

“When new generation capacity is constructed or contracted, older generation fleet needs to be systematically shut down in concert with actual demand.” 

The Energy Intensive User Group (EIUG) of Southern Africa also called on Nersa to reject Eskom’s application. EIUG chief executive Xolani Mbanga said further increases in tariff would only exacerbate Eskom’s death-spiral.

Mbanga said the demand for electricity in the three year period covered by the regulatory clearing account (RCA) was far less than the installed capacity of Eskom “and, had the generation fleet been optimally performing there would have been no need to purchase additional power on short-term contracts and from international utilities.”

The RCA is a backward-looking mechanism that seeks to reconcile what Nersa awarded Eskom on the basis of what was forecast in the Multi-Year Price Determination (MYPD) and what materialised, as reflected in the utility’s financial statements.

Mbanga said Nersa  should only allow costs associated with the electricity lower sales and lower revenue. "The costs associated with Eskom’s inability to plan and manage its operations in respect of its primary energy, such as use of expensive coal, transportation of coal in-between power stations, water treatment costs, should be disallowed," said Mbanga. - additional reporting by Sechaba ka'Nkosi.

- BUSINESS REPORT