Impact of Proposed Electricity Tariffs on Sugar Cane Growers Senior Manager Irrigated North: Jacques Schoeman

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1 Impact of Proposed Electricity Tariffs on Sugar Cane Growers Senior Manager Irrigated North: Jacques Schoeman 10 November 2017

2 The RSA Sugar Industry registered sugar cane growers Delivering to 14 Sugar Mills (Strategic crop in MP and KZN) Generates R12 billion in revenue Direct employment of jobs Indirect employment of jobs Approximately 1 million people in RSA rely on the Sugar Industry for a living

3 Komati Malelane MPUMALANGA FREE STATE Pongola KWAZULU-NATAL Umfolozi IRRIGATED AREAS UCL Company Noodsburg Eston Darnall Gledhow Maidstone Felixton Amatikulu RAIN FED AREAS SUGAR MILLS EASTERN CAPE Sezela Umzimkulu

4 Who SA Canegrowers represent registered growers delivering on average 20 million tons cane p.a. Around 90% are Small Scale Growers of whom delivered last season Large Scale Growers growers including 323 black land reform growers producing more than 80% of the crop (21% of AUC already transformed to black ownership and growing) Mpumalanga & Pongola 100% reliant on Irrigation KZN Zululand (45%), Midlands (10%) and remainder regions 5% More than 70% of growers in Irrigated regions are SSG s More than 75% of AUC in Mpumalanga is Black owned

5 PROPORTIONAL OPERATIONAL COST - IRRIGATION Irrigation - Water 5% Transport 9% Farm Staff 19% Electricity 18% Chemicals 4% Fertiliser 15% Other 13% Maintenance 11% Fuel 6%

6 Production Costs Average Cost Per Hectare Avg Cost/ha with Eskom 19,9% Tariff increase Income (Average RV R ) R R Ratoon Management Costs (fertilizer, herbicide etc.) R R Electricity R R Transport R R Levies R340 R340 Irrigation Maintenance R R Project Farmers Association R 500 R 500 Road and Office Maintenance R 300 R 300 Harvesting group R R Total Production Costs R R32303 Irrigation Labour R 300 R 300 Management Costs R R Other Costs R R TOTAL COSTS R R Earnings (Before tax and LOAN repayment) R R 2 852

7 PRODUCTION DATA - TONS PER HA AREA UNDER CANE/ PRODUCTION ELECTRICITY COSTS/HA PROJECT MILL AREA NUMBER OF BENEFICIARIES WITH 19% INCREASE A Komati 254,8 80,3 80,4 14 R8 000 R9 592 B Komati ,9 71,3 20 R7 450 R8 933 C Komati ,7 74,8 47 R7 200 R8 633 D Komati 433,1 69,5 83,8 83 R R E Malelane 216,6 77, R5 000 R5 995 F Malelane ,9 56,2 37 R9 000 R G Komati 224,5 78, R5 800 R6 954 H Malelane 366, ,7 42 R4 000 R4 796 I Komati 401,6 70,3 69,5 54 R5 500 R6 595 J Komati 267,3 100,3 117,2 46 R8 800 R K Komati 373,8 60,4 64,3 55 R6 200 R7 434 L Malelane 164,6 52,8 52,8 23 R9 000 R M Komati 596,2 54,8 62,2 83 R7 800 R9 352 N Malelane 599, ,9 47 R5 300 R6 355 O Malelane 117,7 75, R R P Malelane 109,4 68, R5 500 R6 595 Q Komati 33,4 85,8 102,2 6 R7 100 R8 513 R Malelane 82 58,6 56,8 152 R6 500 R7 794 S Komati 280,8 78, R6 200 R7 434 T Komati 361,3 58,3 78,1 45 R5 500 R6 595 U Komati 100,2 95,6 35,9 200 R8 500 R V Komati 371,8 93, R8 600 R W Komati 327,5 89,3 76,9 30 R5 750 R6 894 X Komati 540,4 68, R6 800 R8 153 Y Komati 682, ,9 70 R9 500 R TOTAL 7750,30 73,40 72, ,00 R7 181 R8 610

8 Cane farmers are price takers! Payment to growers for cane delivered is on a recoverable value (RV) basis. Growers are price takers and therefore have no influence to recover increased costs from this RV price. Little control over input costs fluctuations Need to work strictly to a budget as switching between farm enterprises NOT possible on short term basis Very low ability to absorb input price shocks Growers can only transfer cost from one input to another usually staff numbers are reduce because if yield is going down by e.g. not applying the correct amount of fertiliser, then the whole farm is at risk and all the beneficiaries. IF NERSA DECIDE TO GRANT ESKOM THE OPPORTUNITY TO INCREASE TARIFFS ABOVE INFLATION RELATION STRONG NEGATIVE EFFECT ON SUGAR CANE FARMING VIABILITY IN IRRIGATED REGIONS ESPECIALLY THE SMALL SCALE AND EMERGING GROWERS.

9 Cane farmers are price takers! the risk of job losses due to THIS increase in one key production factor (being electricity) can be in the order of farm workers and their families This is totally against the objectives of CANEGROWERS as well as the governmental development plan!

10 Comments to NERSA Why when Eskom applies for a renewed tariff increase it is usually more than double what the leading index is? Eskom contemplates that they justify an increase of 19.9% as proposed for FY2018/19 since they lost demand and that the sale volume rebasing contributes 9.4%, IPP s 5.5%, OPEX 7% to name a view. Basics Supply & Demand Electricity remains an inelastic product, but this is slowly starting to change as the price of electricity becomes more in line with alternatives modes of generation. Eskom is going to continuously see a decrease in sales volume as consumer transition to alternatives and self-sustainability.

11 SA Canegrowers request to NERSA Cane growers and the sugar industry are striving to improve their use of electricity to control increasing costs. Proposed tariff increases is unaffordable Impact on sustainability of a significant number of sugar cane growers and affect the industry in terms of economic growth, sustainability, job creation and food price security. SA Canegrowers request NERSA to NOT grant Eskom any tariff increases above CPI!

12 SA Canegrowers request to NERSA Cane growers and the sugar industry are striving to improve their use of electricity to control increasing costs. Proposed tariff increases is unaffordable Impact on sustainability of a significant number of sugar cane growers and affect the industry in terms of economic growth, sustainability, job creation and food price security. SA Canegrowers request NERSA to NOT grant Eskom any tariff increases above CPI!

13 Thank you Questions?