By Maile Matsimela

South African farmers face an unprecedented challenge as electricity costs continue to skyrocket, threatening both farm viability and food security across the nation. The proposed 12.74% electricity tariff increase by Eskom could push many agricultural operations to breaking points, particularly those dependent on irrigation and cold storage facilities.

Recent economic modelling reveals projections for both farmers and consumers alike.

This article is based on research compiled by Bhekani Zondo, Lwazi Dladla, Dr Victor Thindisa, Dr Solly Molepo, and Prof. Heinrich Bohlmann (University of Pretoria) for the National Agricultural Marketing Council (NAMC).

South Africa’s agricultural sector spans 97 million hectares, with diverse operations ranging from irrigated horticulture to extensive livestock production. Approximately 1.3 million hectares of productive crop and orchard land rely on irrigation systems, with a staggering 87% of horticulture production dependent on reliable water pumping. For staple crops, irrigation requirements vary: about 16% for maize, 15% for soybean and 35% for both sugarcane and wheat.

The agricultural sector has doubled its output over recent decades through technological advancements, all of which require dependable energy sources. Electricity powers critical farm operations, including irrigation pumps, animal house lighting, livestock feeding and watering systems, and milking machines. Downstream, electricity drives refrigeration facilities, processing equipment in abattoirs, grading and packaging machinery, and cold chain storage systems.

What makes the current situation particularly concerning is the trajectory of electricity costs. Prior to 2007, South Africa boasted some of the world’s lowest electricity prices. Since then, tariffs have surged by more than 500%, dramatically outpacing inflation. The average electricity tariff has jumped from 19.59 cents per kilowatt-hour in 2008 to approximately 143.50 c/kWh by 2023 – an increase exceeding 600% in just 15 years.

Eskom’s latest application to NERSA requests a further 12.5% increase for 2025/2026, following already substantial hikes of 18.65% in 2023 and 12.72% in 2024. This request stems from Eskom’s deteriorating financial position, with debt exceeding R400 billion, ongoing operational failures at coal-fired power stations, and high costs of procuring electricity from Independent Power Producers.

Concerning picture

Economic modelling using the University of Pretoria General Equilibrium Model (UPGEM) paints a concerning picture. In the short-term, the electricity tariff hike is projected to reduce aggregate employment by 0.31%, contract real GDP by 0.28%, and increase the consumer price index by 0.65%.

For the agricultural sector specifically, production costs will rise across all segments – livestock operations face the highest increase at 0.41%, horticulture (fruits and vegetables) will see costs rise by 0.23% and field crop production costs will increase by 0.16%.

The food manufacturing sector faces even steeper challenges, with bakery industries projected to see production costs rise by 0.57%, followed by grains (0.48%), dairy (0.46%) and meat processing (0.37%).

These cost increases will inevitably translate to reduced production. Horticulture output is forecast to decline by 0.14%, field crops by 0.09% and livestock by 0.05% in the short term. Domestic prices for agricultural products will rise accordingly, with bakery products (0.57%), grain (0.48%), dairy (0.46%), livestock (0.41%) and meat (0.38%) seeing the most significant increases.

While some production costs may moderate in the long term, the structural impact remains significant. Bakery production costs will continue to show the highest growth at 0.17%, followed by livestock (0.15%), field crops (0.12%) and horticulture (0.09%).

Production output will remain depressed across several key sectors. The bakery industry output is projected to decline by 0.30%, field crops by 0.27%, livestock by 0.25%, and sugar by 0.21%. Though some sectors like oil, fats, and beverages may see modest increases, the overall agricultural production landscape remains challenging.

Incentives for transformative change

The electricity crisis, while presenting immense challenges, also creates powerful incentives for transformative change. South African farmers are increasingly exploring decentralised renewable energy solutions, particularly solar photovoltaic systems. Though initial investment costs are substantial, on-site renewable energy generation offers farmers long-term operational cost savings, greater energy resilience, and independence from Eskom’s increasingly unreliable supply.

Forward-thinking agricultural operations, particularly larger agribusinesses, have already begun implementing solar installations and hybrid energy systems. These early adopters are positioning themselves to weather future electricity price volatility.

Government support is emerging through initiatives like the Agro-Energy Fund, a collaboration between the Land Bank and the Department of Agriculture. This blended finance programme specifically targets energy-intensive agricultural activities, including irrigation, intensive production systems and on-farm cold chain operations. Additional support comes through the Comprehensive Agricultural Support Programme (CASP), particularly its pillar on on-farm and off-farm infrastructure.

The proposed electricity tariff increase presents significant challenges for South Africa’s agricultural sector. Without proactive intervention, the compounded effects of rising electricity costs could undermine agricultural sustainability, threaten food security and hamper broader economic recovery.

Government must prioritise and expand farmer support programmes that facilitate broader adoption of decentralised renewable energy on farms. Particular attention should be given to smallholder farmers and energy-intensive producers who may lack the capital resources to invest in alternative energy solutions.

The future of South African agriculture depends on finding a balance between the nation’s energy infrastructure needs and the viability of the agricultural sector. Through thoughtful policy, targeted financial support and innovative approaches to on-farm energy generation, South African agriculture can navigate this challenging transition while maintaining its vital role in the national economy.