Business Maverick


Farmers get little energy crisis reprieve, while food manufacturers benefit from fuel levy rebate

Farmers get little energy crisis reprieve, while food manufacturers benefit from fuel levy rebate
A general view of farmers harvesting fruit on 26 March 2020 in Cape Town, South Africa. (Photo: Gallo Images / Misha Jordaan)

The government has hiked the tax on cigarettes and booze by a nominal 4.9%, and expanded the fuel levy rebate to food manufacturers for a period of two years. That’s because rolling blackouts, the weakening exchange rate and higher input costs are driving food price inflation.

Farmers and the agriculture sector received little mention in Finance Minister Enoch Godongwana’s Budget, but their impact on the economy and food security loomed large.

That’s because rolling blackouts, crime and higher input costs are driving food price inflation.

The Budget provided some reprieve as the liquor and cigarette sectors have been knocked with only a 4.9% increase in the excise tax.

It will be welcome news for consumers too.

Annual consumer inflation has slowed for the third consecutive month, decreasing to 6.9% in January from 7.2% in December, with food inflation accelerating: The annual rate climbed to 13.4% in January, the highest reading since April 2009 when the rate was 13.6%.

Stats SA says of all the product groups in the CPI basket, bread and cereals recorded the highest rate in January (21.8%), which was up from 20.6% in December and is the highest reading for this category since February 2009 (23.8%).

Meat inflation increased to 11.2% in January from December’s 9.7%. Quick-frozen chicken portions, the highest weighted meat product, increased 2.7% between December and January. Fresh chicken portions were up 5.3%, beef offal up 5.2%, and stewing beef up 3.6%. Bacon was 19.4% more expensive.

Fish inflation rose to 13% from 10.4% in December – the highest annual inflation rate for fish since May 2009 when it was 14.2%.

The latest Pietermaritzburg Household Affordability Index suggests that the cost of a basic nutritional food basket for a family of seven increased by R66.35 (1.1%) from R5,779 in December 2022 to to R5,845 in January 2023. The year-on-year increase of that food basket was 9.9%, which is in line with Treasury’s estimates for 2022.

This week, reports surfaced of sheep rustlers driving Free State farmers to sell off their livestock and Agri SA issued a statement calling for decisive interventions to protect food security.

Essential service call

Before the State of the Nation Address (Sona), the farmers’ association had called on President Cyril Ramaphosa to:

  • Declare the agricultural sector and associated value chain an essential service;
  • Partially exempt the agricultural sector from rolling blackouts beyond Stage 4;
  • Allow for higher rebates on diesel and petrol used for electricity generation;
  • Amend the current tariff structure to reduce the cost of electricity during peak times;
  • Trade load shedding schedules using a local feasibility study (a tiered approach could be taken, using red, orange and green to identify critical areas); and
  • Rapidly expand load curtailment to all agricultural areas which qualify in terms of the user mix.

It warned that unless these measures were implemented, a catastrophe loomed for the country as farming operations would be disrupted by equipment damage due to power failures; food production would increase as farmers were forced to irrigate at peak prices, and labour costs would soar due to irregular work hours based on the blackout schedules. Meat producers would be unable to pump water for their animals or to process them for slaughter.

Agro-processing and retail would also suffer as packing and cooling operations failed, which would have an impact on food affordability and availability.

Agri SA also recently expressed concern over the announcement of a 9.6% increase in the national minimum wage, saying an increase in costs would further strain already hard-pressed farmers who were battling to contain the costs of blackouts, crumbling infrastructure and high input costs.

At Sona, Ramaphosa mentioned cannabis farming, talked about his Presidential Employment Stimulus – which is said to have helped 140,000 small-scale farmers with input vouchers to buy seeds, fertiliser and equipment – and said the Treasury was considering the feasibility of urgent measures to mitigate the impact of blackouts on food prices.

Those urgent measures appear to be limited to the 4.9% increase in the excise tax; an expanded rebate on the diesel price to offset blackout costs and a commitment to finalise the land restitution programme, which has been allocated R12.5-billion over the Medium Term Expenditure Framework period.

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The government implemented the diesel refund system in 2000 to provide full or partial relief for the general fuel levy and the RAF levy to primary sectors. The refund system is already in place for the farming, forestry, fishing and mining sectors, but in light of the long-standing and ever worsening electricity crisis, a similar refund on the RAF levy for diesel used in the manufacturing process (such as for generators) will be extended to the manufacturers of foodstuffs.

This will take effect from 1 April 2023, with refund payments taking place once the system is developed, and will be in place for two years, until 31 March 2025. This relief is implemented to limit the impact of power cuts on food prices.

Over the next three years, the government will focus on finalising outstanding restitution claims and supporting resettled farmers to sustain productivity, create jobs and reduce poverty.

To manage biosecurity, increase agricultural production and take care of natural resources, the Department of Agriculture, Land Reform and Rural Development has been allocated R7.8-billion over the medium term.

Cheers from wine industry

The wine industry has cheered Treasury’s announcement of the latest excise duty notches, saying it shows an understanding of the financial realities that wine businesses face.

While the excise duty increased by 4.9% on wine and brandy, the 0.7% increase on sparkling wine is in line with the industry’s request that the rate should be kept flat, to help SA’s sparkling wine align with international excise tax benchmarks.

In a statement released soon after the Budget speech, Vinpro’s MD, Rico Basson, expressed gratitude: “In discussions with Treasury over the past few months, Vinpro and other industry organisations have emphasised the dire position of the South African wine industry and requested that inflation-driven excise taxes be introduced.

“This, together with other interventions as agreed in the Agriculture and Agro-Processing Master Plan, will enable the wine industry to fulfil the important role it plays in the economy of the country and in our society.”

Basson said SA had a large and growing market for illicit alcohol, fuelled by high increases in taxes on liquor.

“We have already seen in the past that an abnormal increase in excise duty fuels illicit trade [already 22% of the domestic liquor market] instead of serving as a deterrent to those who do not consume wine responsibly,” said Basson.

“Policy changes in the absence of law enforcement will therefore have no impact on countering the misuse of alcohol.”

The “halo effect” of wine and its importance for tourism, wine exports and the brandy industry, should not be underestimated either.

“South Africa is known for our wine and wine farms play a key role in tourism. The wine industry contributes R7.2-billion to the GDP [pre-Covid] and wine also makes a major contribution to the export market, with 50% of South African wine – worth R10.2-billion – being exported to more than 130 international markets.”

Responding to the Budget, AgriSA said Godongwana has delivered a “solid budget for our difficult climate”.

“[While] the government could have gone further in addressing the challenges facing the agricultural sector, the Budget reflected a sober analysis of the environment in which we operate. It demonstrated an understanding of the particular difficulties faced by the sector with significant implications for food security.”

Agri SA said it was pleased by the decision not to increase the HPL but there are areas of concern in the Budget, notably the public sector wage bill. However, the organisation said it is satisfied overall that Godongwana has understood the context in which the Budget was delivered.

“This is a critical moment for an agricultural sector that is being battered by loadshedding. Only time will tell if [the] government will meet the moment with the urgency it requires in the implementation of the interventions announced.” BM/DM


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