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

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 Escom’s capacity building programmes.

BUT

• Agriculture needs affordable electricity for sustainable production.

What is Affordable ??????

CURRENT ELECTRICITY COSTS

WATER & ELECTRICITY1 mm administered by pivot = 10 cubic water. Percentage change in Escom tariffs 0.0%

3 cubic = 1 unit electricityCost / unit R 0.46 45.8 Agric. TariffCost / mm water R 1.53 95 2010

201 2012

WATER TARIFFS / AREA

Total cost per annum per/ha QUANTITY Cost / m³ Cost / mm 0.0%

Cubic mVaalharts 1001.76 9140 0.110 1.0960Klipbank / Barkly 919.05 11855 0.078 0.7752Spitskop 362.01 7700 0.047 0.4701Scholtzburg 922.77 11000 0.084 0.8389Ritchie 921.37 11000 0.084 0.8376Rietrivier 1,234.77 11000 0.112 1.1225Oranje-Rietkanaal 933.59 11000 0.085 0.8487Ritchie 1,130.11 11000 0.103 1.0274Benede-Riet 772.92 11000 0.070 0.7027Oranje-Vaal 451.00 11000 0.041 0.4100Prieska & Hopetown 195.88 11000 0.018 0.1781Boegoeberg 1,375.00 15000 0.092 0.9167AVERAGE 0.076 0.7647

WHEAT BUDGETINCOME

Gross Income Product Unit Production Price/ ton Income/ha

Bread Wheat Grain (B1) @ Safex ton 6.5 2,158.00 %∆ Price 0% 2158

Min: location differential -330.00 %∆ ton/ha 0% 6.5

Min: Grade difference -95.00

Farm gate price 1,733.00 11,264.50

Hay ton 0.00 150.00 0.00

Gross Production value 11,264.50 %∆ 0% 11265

WHEAT BUDGETINPUT COSTS

Inputs Products Unit Number Price/u Price/ha %∆

Entrencement costs Safex ton 6.5 150.00 975.00 %∆ 0% 975

Fuel Diesel liter 59.02 6.27 369.94 %∆ -25% 495

Fertilisation N kg 240 9.71 2,330.40 %∆ 0% 2,330

P kg 40 17.63 705.20 %∆ 0% 705

K kg 55 13.88 763.40 %∆ 0% 763

Micro elements Mancozin liter 1 122.92 122.92 %∆ 0% 123

Tripholate kg 3 71.41 214.23 %∆ 0% 214

Zinkpholate kg 1 54.57 54.57 %∆ 0% 55

Marinure DS liter 1 94.00 94.00 %∆ 0% 94

Comcat kg 0.2 520.00 104.00 %∆ 0% 104

Seed kg 100 8.80 880.00 %∆ 0% 880

Herbicides Buctril liter 0.75 159.61 119.71 %∆ 0% 120

MCPA liter 0.5 40.90 20.45 %∆ 0% 20

Pesticides Bumper liter 1.2 127.15 152.58 %∆ 0% 153

Fighter liter 3 44.52 133.56 %∆ 0% 134

Wetsit liter 1.2 72.00 86.40 %∆ 0% 86

Upright liter 2.5 61.33 153.33 %∆ 0% 153

Aircraft Ha 2 135.00 270.00 %∆ 0% 270

Insurance GWK ton 6.5 3.50% 394.26 %∆ 0% 394

Harvest costs Pillager ton 1 575.00 575.00 %∆ 0% 575

Transport ton 6.5 50.00 325.00 %∆ 0% 325

Irrigation Costs Eskom mm 570 1.53 870.20 %∆ 0% 870

Water Board mm 570 0.76 435.89 %∆ 0% 436

Scheduling 1 40.00 40.00 %∆ 0% 40

Meganisation H & O 1 336.64 336.64 %∆ 0% 337

Pivot costs H & O 1 241.50 241.50 %∆ 0% 242

Total Inputs 10,768.17

Interest Months 3 11.00% 296.12

Total production cost 11,064.29 %∆ 2% 10857.6

Marginal Overhead Costs 200.21 %∆ 180% 71.4

NOTE’S 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


3 cubic water = 1 unit electricity Cost / unit R 0.62 45.8 Agric. TariffCost / mm water R 2.06 95 2010

201 2012


Total cost per annum per/ha QUANTITY Cost /m³ Cost / mm 5.0%


WHEAT BUDGET WITH 35 % INCREASE - INCOME YEAR 1

Gross Income Product Unit Production Price/ton Income/ha

Bread Wheat Grain (B1) Safex ton 6.5 2,158.00 %∆ Price 0% 2158

Min : location differential -330.00 %∆ ton/ha 0% 6.5


Farm gate price 1,733.00 11,264.50

Hay ton 0.00 150.00 0.00

Gross Production value 11,264.50 %∆ 0% 11264.5

WHEAT BUDGET WITH 35 % INCREASE – INPUT COSTS YEAR

1Inputs Products Unit Number Price/u Price/ha %∆


Fuel Diesel liter 79.02 6.27 520.06 %∆ 5% 495


P kg 40 17.63 740.46 %∆ 5% 705

K kg 55 13.88 801.57 %∆ 5% 763

Micro elements Mancozin liter 1 122.92 129.07 %∆ 5% 123

Tripholate kg 3 71.41 224.94 %∆ 5% 214

Zinkpholate kg 1 54.57 57.30 %∆ 5% 55


Comcat kg 0.2 520.00 109.20 %∆ 5% 104

Seed kg 100 8.80 924.00 %∆ 5% 880


MCPA liter 0.5 40.90 21.47 %∆ 5% 20


Fighter liter 3 44.52 140.23 %∆ 5% 134

Wetsit liter 1.2 72.00 90.72 %∆ 5% 86

Upright liter 2.5 61.33 160.99 %∆ 5% 153

Aircraft Ha 2 135.00 283.50 %∆ 5% 270


Harvest costs Pillager ton 1 575.00 575.00 %∆ 0% 575

Transport ton 6.5 50.00 325.00 %∆ 0% 325

Irrigation costs Escom mm 570 2.06 1,174.77 %∆ 35% 870

Water Board mm 570 0.76 457.69 %∆ 5% 436

Scheduling 1 40.00 40.00 %∆ 0% 40

Meganisation H & O 1 336.64 353.47 %∆ 5% 337

Pivot costs H & O 1 241.50 253.58 %∆ 5% 242

Total inputs 11,583.80



Marginal Overhead Costs -637.85 %∆ -993% 71.4

Increased CalculationYear 1

Unit costs % Increase Increase New tariffR 0.46 35 R 0.16 R 0.62

Year 2R 0.62 35 R 0.22 R 0.84

Year 3R 0.84 35 R 0.29 R 1.13

Percentage CalculationInitial Unit Costs % Increase New tariff

R 0.46 245.65 R 1.13

ControlUnit costs % Increase New tariff

R 0.46 245.65 R 1.13

RECURRENT INCREASE OF 35% OVER 3 YEARS

TARIFF INCREASE OF 35 % per annum - YEAR 3


3 cubic water = 1 unit electricityCost / unit R 1.58 45.8 Agric. TariffCost / mm water R 5.27 95 2010

201 2012




WHEAT BUDGET WITH 35 % INCREASE - INCOME YEAR 3

Gross Income Product Unit Production Price/ton Income/ton

Bread Wheat Grain (B1) Safex ton 6.5 2,158.00 %∆ Price 0% 2158

Min: location differential -330.00 %∆ ton/ha 0% 6.5


Farm gate price 1,733.00 11,264.50

Hay ton 0.00 150.00 0.00

Gross Production Value 11,264.50 %∆ 0% 11264.5

Inputs Product Unit Number Price/u Price/ha %∆


Fuel Diesel liter 79.02 6.27 569.59 %∆ 15% 495


P kg 40 17.63 810.98 %∆ 15% 705

K kg 55 13.88 877.91 %∆ 15% 763

Micro-elements Mancozin liter 1 122.92 141.36 %∆ 15% 123

Tripholate kg 3 71.41 246.36 %∆ 15% 214

Zinkpholate kg 1 54.57 62.76 %∆ 15% 55


Comcat kg 0.2 520.00 119.60 %∆ 15% 104

Seed kg 100 8.80 1,012.00 %∆ 15% 880


MCPA liter 0.5 40.90 23.51 %∆ 15% 20


Fighter liter 3 44.52 153.59 %∆ 15% 134

Wetsit liter 1.2 72.00 99.36 %∆ 15% 86

Upright liter 2.5 61.33 176.32 %∆ 15% 153

Aircraft Ha 2 135.00 310.50 %∆ 15% 270


Harvest Costs Pillager ton 1 575.00 575.00 %∆ 0% 575

Transport ton 6.5 50.00 325.00 %∆ 0% 325

Irrigation Costs Escom mm 570 5.27 3,002.19 %∆ 245% 870

Water Board mm 570 0.76 501.27 %∆ 15% 436

Skedulering 1 40.00 40.00 %∆ 0% 40

Meganisation H & O 1 336.64 387.14 %∆ 15% 337

Pivot Costs H & O 1 241.50 277.73 %∆ 15% 242

Total inputs 14,182.63



Magrinal Overhead Costs -3,308.15 %∆ -4733% 71.4

WHEAT BUDGET WITH 35 % INCREASE – INPUT COSTS YEAR

3

CURRENT ELECTRICITY COSTS

WATER & ELECTRICITY1 mm administered by pivot = 10 cubic water. Persentage change in Escom tariffs 0.0%3 cubic water = 1 unit electricityCost / unit R 0.46 45.8 Agric. TariffCost / mm water R 1.53 95 2010

201 2012

WATER TARIFFS / AREA Total cost per annum per/ha QUANTITY Cost /m³ Cost / mm 0.0%Cubic m

Vaalharts 1001.76 9140 0.110 1.0960Klipbank / Barkly 919.05 11855 0.078 0.7752Spitskop 362.01 7700 0.047 0.4701Scholtzburg 922.77 11000 0.084 0.8389Ritchie 921.37 11000 0.084 0.8376Rietrivier 1,234.77 11000 0.112 1.1225Oranje-Rietkanaal 933.59 11000 0.085 0.8487Ritchie 1,130.11 11000 0.103 1.0274Benede-Riet 772.92 11000 0.070 0.7027Oranje-Vaal 451.00 11000 0.041 0.4100Prieska & Hopetown 195.88 11000 0.018 0.1781Boegoeberg 1,375.00 15000 0.092 0.9167AVERAGE 0.076 0.7647

MAIZE BUDGETINCOME

Gross Income Product Unit Production/ha Price/ton Income/haMaize BT Safex price ton 13 1,418.00 %∆ Prys 0%

Min: location differential -267.00 %∆ ton/ha 0%Min: Grade difference 0.00Farm Gate Price 1,151.00 14,963.00Hay ton 0.00 150.00 0.00

Gross Production value 14,963.00

MAIZE BUDGET INPUT COSTSInputs Product Unit Number Price / u Price/ha

Entrencement costs Safex ton 13 150.00 1,950.00 %∆ 0%Fuel Diesel liter 52 6.27 325.37 %∆ 0%Fertilisation N kg 280 9.71 2,718.80 %∆ 0%

P kg 50 17.63 881.50 %∆ 0%K kg 65 13.88 902.20 %∆ 0%

Micro elements Maize Pholate kg 2 77.83 155.66 %∆ 0%Tripholate kg 2 71.41 142.82 %∆ 0%Solubor kg 2 30.54 61.08 %∆ 0%Marinure DS liter 1 94.00 94.00 %∆ 0%

Seed Pitte 90000 0.0321 2,891.25 %∆ 0%Herbicides Atrazine liter 1.50 59.74 89.60 %∆ 0%

Wenner liter 1.00 70.49 70.49 %∆ 0%Relay liter 0.80 65.46 52.37 %∆ 0%

Pesticides Endosulfan liter 0.0 42.38 0.00 %∆ 0%Cyperfos liter 0 69.12 0.00 %∆ 0%Aircraft Ha 0 117.00 0.00 %∆ 0%

Insurance GWK ton 13 1.2% 179.56 %∆ 0%Harvest costs Pillager ton 1 600.00 600.00 %∆ 0%

Transport ton 13 50.00 650.00 %∆ 0%Irrigation costs Water Board mm 690 0.76 527.66 %∆ 0%

Escom mm 690 1.53 1,053.40 %∆ 0%Scheduling 40.00 40.00 %∆ 0%

Meganisation H & O 1 152.07 152.07 %∆ 0%Pivot Costs H & O 1 241.50 241.50 %∆ 0%Total Inputs 13,779.32Interest Months 3 11.00% 378.93Total Production Costs 14,158.25 %∆ 0%

Marginal Overhead Costs 804.75 %∆ 0%

TARIFF INCREASE OF 35 % per annum - YEAR 3


3 cubic water = 1 unit electricityCost / unit R 1.58 45.8 Agric. TariffCost / mm water R 5.27 95 2010

201 2012




MAIZE BUDGETINCOME

Gross Income Product Unit Production/ha Price/ton Income/haMaize BT Safex price ton 13 1,418.00 %∆ Prys 0%

Min: location differential -267.00 %∆ ton/ha 0%Min: Grade difference 0.00Farm Gate Price 1,151.00 14,963.00Hay ton 0.00 150.00 0.00

Gross Production value 14,963.00

MAIZE BUDGET WITH 35 % INCREASE – INPUT COTS YEAR 3

Inputs Product Unit Number Price / u Price / haEntrencement cost Safex ton 13 150.00 1,950.00 %∆ 0%Fuel Diesel liter 52 6.27 374.18 %∆ 15%Fertilisation N kg 280 9.71 3,126.62 %∆ 15%

P kg 50 17.63 1,013.73 %∆ 15%K kg 65 13.88 1,037.53 %∆ 15%

Micro element Maize Pholate kg 2 77.83 179.01 %∆ 15%Tripholate kg 2 71.41 164.24 %∆ 15%Solubor kg 2 30.54 70.24 %∆ 15%Marinure DS liter 1 94.00 108.10 %∆ 15%

Seed Pitte 90000 0.0321 3,324.94 %∆ 15%Herbicides Atrazine liter 1.50 59.74 103.04 %∆ 15%

Wenner liter 1.00 70.49 81.06 %∆ 15%Relay liter 0.80 65.46 60.22 %∆ 15%

Pesticides Endosulfan liter 0.0 42.38 0.00 %∆ 0%Cyperfos liter 0 69.12 0.00 %∆ 0%Aircraft Ha 0 117.00 0.00 %∆ 0%

Insurance GWK ton 13 1.2% 179.56 %∆ 0%Harvest costs Pillager ton 1 600.00 600.00 %∆ 0%

Transport ton 13 50.00 650.00 %∆ 0%Irrigation costs Water Board mm 690 0.76 606.81 %∆ 15%

Escom mm 690 5.27 3,634.23 %∆ 245%Scheduling 40.00 40.00 %∆ 0%

Meganisaiton H & O 1 152.07 174.88 %∆ 15%Pivot costs H & O 1 241.50 277.73 %∆ 15%Total inputs 17,756.11Interest Months 3 11.00% 488.29Total Production Costs 18,244.40 %∆ 29%

Marginal Overhead Costs -3,281.40 %∆ -508%

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 11 000 m3 / 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

• Isn’t 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 = R2 371 143 milj– 26 % fruit & vegetables = R1 243 491 milj– 24 % crops = R1 148 288 milj– 9 % aqua culture = R48 142 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 Agriculture’s CASP-programme

SOCIO - WELFARE• The economic upset will have a huge influence

on labour in the Northern Cape– Permanent labourers = 26 871– Temporary & seasonal labourers = 47 874

» (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 2001-2005

» (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

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

Documents

merwe slide

wheat budget income

maize budget income

increase of input costs

electricity agriculture

wheat budget input costs

increase input costs

current electricity