Running generators for irrigation and pack house operations costs agribusinesses six times more than the price of Eskom electricity.
Countering load shedding is coming at a huge costs for the agricultural sector, says Absa AgriBusiness.
In a recent interview with Business Report, the banking unit’s senior economist, Dr Marlene Louw, said the perishable nature of agricultural commodities made the supply of energy at the right times important.
She said rolling blackouts affected the whole value chain and ecosystem.
“It presents risks in terms of production volumes, quality and costs. Producers have, where possible, to a large extent invested in back up energy capacity and renewables to offset some of the risks,” Louw said.
Louw said the protection of the cold chain through to the retailers was important.
The South African agricultural sector had shown, over many years and due to many factors (local and international), that it had the ability to get all the stakeholders together to be flexible and weather any storm.
The sector had seen the effects of headwinds that had started building in 2022 for certain sub-sectors, combined with newer challenges starting to impact sentiment negatively in the industry last year.
“These include municipal service delivery, logistical efficiency, animal disease and load shedding. Some green shoots have, however, also emerged, with reductions in certain inputs such as chemical and fertiliser prices, lower shipping costs and good price performance in foreign markets for key export commodities such as citrus.”
She said the Absa AgriBusiness was optimistic about 2024, “keeping in mind that despite a range of challenges over the past four years, agriculture South Africa has shown resilience”.
In the third quarter of last year, South Africa's agricultural gross value added contracted by 9.6%, following an encouraging recovery of 2.8% quarter-on-quarter (seasonally adjusted) in the second quarter.
The figures were a surprise, as the sector thought the ample field crop, whose harvest was a month behind the typical schedule, would be reflected in the third-quarter data.
Absa AgriBusiness said a major factor contributing to pressures associated with high(er) production costs was the rapid increase in interest rates that had started in a response to the market disruptions associated with the pandemic.
There appeared to be a consensus among market analysts that interest rates had reached the top of the cycle, and that there could be relief of around a 100 basis points during the course of 2024.
“This will help the industry to protect its margins and profitability.”
Louw said it was important for the agricultural sector and the broader South Africa that the industry kept on performing well.
“The importance lies in food security, job creation and rural development and wellbeing.”
Absa AgriBusiness said that over the past years, increased uncertainty and market volatility had shown that communication and good relationships were key to business success. In the new year, it said it therefore aimed to support its clients by nurturing the relationships it had with them.
BUSINESS REPORT