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Free State AGRI - 100114 FSA pres to NERSA RE ESKOM tariff

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Free State Agriculture / Vrystaat Landbou
Presentation to NERSA:
ESKOM tariff increase
impacts on
Agriculture in
the Free State
Louw Steytler
President: Free State Agriculture
Free State Agriculture / Vrystaat Landbou
Presentation Outline:
• Introduction to Free State Agriculture
• Some Agricultural Statistics
• Main issues RE ESKOM tariff increases:
– Contrary to Government programmes
• Land Reform - Impact on emerging farmers
• Comprehensive Rural Development Programme
– Use of environmental levy?
– Effect on commercial agriculture
• Irrigation industry
• Intensive agriculture and
– Conclusions
– Suggestions
Free State Agriculture / Vrystaat Landbou
A dynamic, modern and
directive organisation for
agriculture in the Free State.
To promote a safe and
sustainable agricultural
environment in the interest
of sustainable food
production in the Free State.
Free State Agriculture / Vrystaat Landbou
Top level discussions on main issues
though the Premiers Forum
Where FSA fits into the AgriSA family
Free State Agriculture / Vrystaat Landbou
President, Vise-president & 6 members
President, Vice-president, 20 Regional Representatives, Agribusiness representatives,
commodity organizations and a female and young farmer organisation representatives.
21 functional COMMITEES
1 in each of the 20 FS-municipalities
Free State Agriculture / Vrystaat Landbou
20 Regional representatives in each of the 20 FS
district municipalities = 20 Agri-Forums
Free State Agriculture / Vrystaat Landbou
Also speaking on behalf of our
Commodity Organisation affiliates
• Red Meat Producers Org.
• Milk Producers Org.
• Grain SA
• National Wool Growers Ass.
• Dry Bean Producers Org.
• potatoes SA
Free State Agriculture / Vrystaat Landbou
Also speaking on behalf of our
Agri-Business affiliates
Free State Agriculture / Vrystaat Landbou
Collective Acton
expropriation hearings June 2008
Free State Agriculture / Vrystaat Landbou
Free State Agriculture / Vrystaat Landbou
SAStats COMPARISON: 2007 & 2002
Farming units: - 12,7% from 45 818 in 2002 to 39 982 in 2007
(but + 4% in Owners and/or unpaid family member numbers).
Employment: - 15,9% (3.1%/yr), from 940 820 in 2002 to 796 806 in 2007.
Wages + 39% (7.7% /yr) from R6.2bil to R8.6bil
Gross farming income: + 49.2%, from R53.3bil in �02 to R79.5bil in �07 (8.,3%/yr)
Current expenditure: Inclusion of animal purchases in the current expenditure
figure (2007), reflects an increase of 41.3%, from R42.1bil in 2002 to R59.5bil in
2007 ( 7.2%/yr)
Capital expenditure: +12.0%, from R2.9bil in 2002 to R3.5bil in 2007. (3.8%./yr –
much less than inflation!)
Market value of farming assets: + 81.5%, from R98.4bil to R178.6bil in 2007
Farming Debt: + 20.1%, from R30,9 billion in 2002 to R37,1 billion in 2007
Free State Agriculture / Vrystaat Landbou
Free State Provincial Ag.STATS:
The FS has the most farming units in the country (7 515 - 19% of total;
FSA membership = 4556)
The FS produces 26.4% of nations field crops & 15,9 % of nations
animals on 10.6% of the land area of South Africa
FS Gross Farming income (R11.9Bil – 15% of nat.)
FS Market value of assets (R25.1Bil – 14% of nat.)
FS Farming Debt
(R6.2Bil – 16.8% of nat.)
FS has greatest loss to theft of tools (28%) & livestock (19%) &
2nd greatest loss (Mpumulanga) to losses from burglaries (16%)
FS has greatest loss of pastures (23%) & products from livestock
/ crops (17%) & 4th greatest loss from veld fires (11%)
EMPLOYMENT: 3.4% of the total FS population receives employment on farms
The ave. FS farmer employs 7.2 full time & 6 part-time workers
Free State Agriculture / Vrystaat Landbou
NERSA presentation 30 Nov 2009
Speaking on behalf of +-5000 farmer members, who together with their spouses and
dependants number over 25 000+ and an additional 100 000 affected farm workers;
As well as on behalf of the industry that makes the largest contribution to the GGP of
most municipalities in the Free State;
Free State Agriculture hereby makes this submission out of concern of the ramifications
of the proposed ESKOM tariff increases on the following:
– Farm profitability and the resulting impact on employment in the agricultural sector
– National food security and affordability of food
– The already high cost of electricity to agriculture due to the high Service and Network
charges, in addition to Energy charge, and
– The fact that farm workers currently do not receive free basic electricity and that farmers in
many instances are providing this to their workers.
Furthermore we would like to reiterate that farmers are price takers and thus have very
little impact on the final retail price of food. If it becomes unprofitable to grow a crop,
farmers will not plant it (& financiers may not finance such an enterprise according to
the Banking Act) thus resulting in scarcity. Scarcity in turn pushes up prices to levels
where it is profitable once again for farmers. This fluctuation in market prices results in
instability in the sector resulting in disincentive for investment and growth.
Free State Agriculture / Vrystaat Landbou
NERSA presentation 30 Nov 2009
Of particular concern are the following highly energy dependant agricultural
– The irrigation sector,
– Intensive agricultural enterprises such as dairies, piggeries, poultry units, tunnels &
green houses.
These high energy primary enterprises produce in excess of 35% of the food we eat in
South Africa (Irrigation 25% - Water Resource Commission Report, & Intensive
industries >10%).
Lack of international trade protection inter alia in the wheat industry for example has
already exerted huge pressure on this winter crop for which there are limited
alternatives. When farmers’ alternatives for production are constrained due to factors
such as increasing energy costs, smaller & family farms are often the ones forced out
of production and off their farms; to be bought out by industrial type farms that can
still profit from economies of scale. This depopulates the countryside further degrading
our struggling rural towns.
The resulting impacts of proposed electricity tariff increases on rural towns are also
totally contradictory to the current Government programs of the new Department of
Rural Development and Land Reform aimed at rural revitalization through inter alia the
formation of (energy dependant) agricultural value adding & processing industries
Free State Agriculture / Vrystaat Landbou
Response to NERSA questions:
• In short the following points:
– A suggestion to the method of financing is an option to charge
half a percentage more on the VAT rate (makes basic foods exempt)
– RE the bad debt question: why must ESKOM carry bad debt of
municipalities? Free State Agriculture requests enforcement
of the political will / “teeth” to address this sustainably
– Why does ESKOM (/the State as only shareholder) need to
make a profit on the investments in ESKOM? What will be the
effect if profit is kept at 0% profit for at least next 3-4 years?
– RE the Roads vs. freight rail debate for transporting coal – Free
Sate Agriculture fully supports the proposal to transport as
much coal as possible via rail due to the shocking state of
roads in our rural areas
Free State Agriculture / Vrystaat Landbou
Special appeal to exclude agriculture
• The special appeal to exclude agriculture (Landrate / Ruraflex
clients) in the price increases is due to the following facts:
– Use <5% of National Electricity (<2.5% of national energy)
– 5-20% reduction in Net Farm Income (BFAP model results) – this will put many
marginal farmers out of business
– If it’s going to hurt commercial agriculture how much more new emerging farmers?
– Increased energy costs will also be totally counterproductive to the Governments
Comprehensive Rural Development Strategy
• To value adding co-operatives which will have large electricity costs components
• Also a disincentive to live in rural areas where electricity is more expensive for paying
customers due to high service and network charges.
– Regarding the already high cost of electricity to agriculture due to the Service and
Network charges, in addition to Energy charge: On an average farm with a
R2000/month account, this consist about 35%, making it a lot more expensive than
a business in town. This percentage of the total Eskom bill however differs from
farm to farm, and the amount of energy used in the enterprise composition of the
– It also reduces the incentives for large commercial farmers to sell land for land
reform and intensify their operations into energy intensive value adding or
intensive farming systems such as tunnels, chickens, pigs, dairies, etc.
Free State Agriculture / Vrystaat Landbou
Charge the areas / industries with
the greatest need
Free State Agriculture
would also like to propose
that ESKOM focus on
charging the areas /
industries with the greatest
need in growth
proportionally more. We
refer to map by Lucas
(2008) :
LUCAS, DAVE (2008) Eskom's Renewable
Strategy: Innovation & Green Energy.
Eskom Corporate Specialist
(Environmental Management) Climate
Change and Sustainability Department.
Viewed 06/11/09
Free State Agriculture / Vrystaat Landbou
35% ESKOM tariff increases will:
- Reduce farm profitability & job losses
- Lead to food insecurity & Increase food prices
- Place a heavier burden on emerging irrigation
and intensive farmers to ever become
Free State Agriculture / Vrystaat Landbou
Impact of 300% ESKOM increase on
Irrigation profitability
The BFAP / GSA / GWK model demonstrates the impact of the initial 300% ESKOM
increase on Irrigation profitability in the GWK co-op service area of the
Orange River, The following is evident:
– The Eskom cost component of the irrigation maize production enterprise budget
increases from 8% to 25% of total variable input costs (R/ha)
– Irrigation maize profitability decreases by 468%
– Breakeven yield at a price of R1 418 / ton is 12.61 tons
– Breakeven price at 13 ton / ha yield is R1 375 / ton
– To make a profit at a yield of greater than 10 tons the Maize price must be greater
than R1 718
– At a Maize price of R1 216 a yield in excess of 14 tons per ha will have to be
The impact on the currently barely profitable irrigation wheat enterprise budget
is far more dramatic, so bearing in mind that most irrigation farmers in this
area rely on a 1 & ВЅ crop per year rotation between wheat and maize, as well
as the high fixed costs component of irrigation, these effects are substantial!
Free State Agriculture / Vrystaat Landbou
Request Env.Levy for Agric.
• Agriculture welcomes/insists on more
renewable energy sources
• Ag. potentially a major source of renewable
energy production (bio-fuels)
• Ag. has the land for renewable (solar / wind)
• Ag insists that portion of Env. Levy be used for
research into Alt. Ag. energy production
• That Government allocate 10x more that
current R15mil to the Energy Subsidy Finance
Office to move away from a Coal base
Free State Agriculture / Vrystaat Landbou
S.A. #12 CO2 emitter globally
Free State Agriculture / Vrystaat Landbou
SA largest CO2 emitter in Africa
Free State Agriculture / Vrystaat Landbou
Impact on emerging & small-scale
• Already poor track record
in production
• Remain highly subsidised
• Sub-economic units
• Less chance of independent survival
• As a case in point: 12 000 ha of excess Orange River capacity
are being allocated to emerging irrigation farmers – Of the
3000 ha allocation to the Free State, proposed Eskom
increases will reduce the potential 300 beneficiaries on 35ha
units to less than 200 beneficiaries on 50ha+ units due to the
economies of scale required for economically viable units
Free State Agriculture / Vrystaat Landbou
Farms pay exorbitant ESKOM service
& Network charges
• E.g. of a farm account to provide “Free Basic” Electricity
& power for pumping “Free Basic” water to 1 worker
Free State Agriculture / Vrystaat Landbou
Specific requests from Free State
In the light of the motivations and reasoning above the following specific
requests from the Agricultural sector:
The immediate freeing up of the energy sector to other potential role-players by a
review of the feed-in tariffs and requirements for feed in to facilitate freeing up the
energy industry.
The consideration of an exemption of the tariff increases to the agriculture sector
The consideration of the proposal of charging the areas / industries with the
greatest need in growth proportionally more (with reference to the map by Lucas,
Further subsidisation / reduction of network and service fees in rural areas in the
National interest of rural revitalisation
An enquiry into the use of the environmental levy and a suggestion that the funds
be used to fund research into alternative “green” energy sources and means to
cost effectively feed into the national grid – even for small scale excess energy
Free State Agriculture / Vrystaat Landbou
• Free up the energy sector
• Make Agricultural ESKOM use exempt from
increases (or at lease limit the allowed increase to
5-10% per year)
• Use Env. Levy for Alt. Ag. energy research
• Make it easier for feeding into the grid
Free State Agriculture / Vrystaat Landbou
Increases in ESKOM tariffs will:
• further jeopardise Food Security in the Sub-Saharan
Africa region and Increase Food Prices
• Most affected industry: Irrigation (25% of the
countries food from irrigation – stable production)
• Will cause Severe Job Losses
• Be contrary to Gov.s Land Reform & Rural Dev. Policy
• Farmer are price takers not price makers so
can’t adjust accordingly in a short time.
Free State Agriculture / Vrystaat Landbou
Life is not about waiting for the storm to pass,
it’s about learning to dance in the rain.
(Alan Knott-Craig)
Thank you!
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