Agribusinesses in South Africa are paying six times more to run generators for irrigation and pack house operations compared to using Eskom electricity, according to Absa AgriBusiness. The banking unit's senior economist, Dr Marlene Louw, highlighted the significant costs of countering load shedding for the agricultural sector in a recent interview.
Louw explained that the perishable nature of agricultural commodities necessitates a reliable energy supply. Rolling blackouts disrupt the entire value chain and ecosystem, impacting production volumes, quality, and costs. To mitigate these risks, producers have largely invested in backup energy capacity and renewables where possible.
The agricultural sector has demonstrated its resilience in the face of various local and international challenges over the years. However, new challenges such as municipal service delivery issues, logistical efficiency, animal disease, and load shedding have begun to affect industry sentiment negatively.
Despite these challenges, Louw expressed optimism for 2024, pointing out that the sector has shown resilience over the past four years. In the third quarter of last year, South Africa's agricultural gross value added contracted by 9.6%, surprising many who expected a boost from a delayed field crop harvest.
A key factor contributing to higher production costs is the rapid increase in interest rates in response to pandemic-related market disruptions. However, market analysts anticipate a potential relief of approximately 100 basis points during 2024, which could help protect industry margins and profitability.
Source: www.iol.co.za