South Africans warned of incoming blow to their budgets

South African consumers are facing another blow to their grocery budgets as food prices are expected to rise in response to Eskom’s electricity tariff increases.

Farmers will collectively bear an estimated additional cost of R1.27 billion to foot the increased energy bill, a burden that threatens to ripple through the agricultural sector.

Theo de Jager, executive director of the Southern African Agri Initiative, warned that this will ultimately raise food prices across South Africa.

Eskom had initially sought a much steeper increase through its Multi-Year Price Determination (MYPD6) application, requesting a cumulative 66% hike over three years.

However, the National Energy Regulator of South Africa (Nersa) scaled back these demands, approving only a 35% increase over the same period.

Even so, the approved 12.7% tariff hike for 2025 continues the trend of rising electricity costs, taking effect on 1 April 2025 for Eskom-supplied customers and on 1 July for those receiving electricity via municipalities, which typically add distribution surcharges.

De Jager has stressed that the increase will be particularly damaging to irrigation, dairy, poultry, pig, and fresh produce farmers.

He highlighted that South African farmers already spend around R10 billion annually on electricity, and this additional burden will further squeeze farm margins.

Small and medium-sized family farms, which lack financial reserves to absorb cost hikes, will be especially vulnerable.

Unlike other industries that can adjust prices to account for rising costs, farmers often have little pricing power and must absorb a significant portion of these expenses.

However, De Jager expects food prices to rise within one or two seasons as the effects of the tariff increase filter through the supply chain.

Electricity costs are just one of several mounting challenges for South Africa’s agricultural sector.

The country also faces risks related to deteriorating infrastructure, particularly in water supply and ports.

Port inefficiencies continue to hamper exports, leading to costly delays for farmers who rely on international markets.

These logistical constraints further erode competitiveness and threaten profitability.

Adding to these concerns is the growing uncertainty surrounding South Africa’s trade relationship with the United States.

Former US President Donald Trump recently signed an executive order halting all aid to South Africa, a move that could have far-reaching economic consequences.

While the immediate impact affects approximately $439 million in aid—primarily funding the country’s HIV/Aids programme—the more pressing issue is the likely exclusion of South Africa from the African Growth and Opportunity Act (AGOA).

AGOA grants duty-free access to the US market for certain South African goods, and losing this preferential trade status would significantly impact industries such as fruit and wine exports.

Business Unity South Africa (BUSA) CEO Khulekani Mathe has voiced concern over this development, warning that while the loss of aid is troubling, the potential removal from AGOA is a much graver issue.

The uncertainty surrounding South Africa’s trade future with the US comes at a time when global trade policies are becoming more protectionist.

The European Union is also tightening trade barriers, even against imports from fellow European nations like France, adding another layer of complexity for South African exporters.

Positive signs

Despite these mounting risks, there are some positive signs for the agricultural sector in 2025.

According to Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa, the country’s agricultural output is expected to recover this year.

A combination of favourable La Niña rainfall patterns, stable electricity supply, expanded summer grain planting areas, and controlled spread of animal diseases all contribute to a more optimistic outlook.

Soil moisture and crop conditions remain relatively good, except for specific areas in the North West, Free State, Western Cape, and Northern Cape, where conditions are more challenging.

Sihlobo cautions that global geopolitical factors could still pose a threat.

Donald Trump’s re-election has introduced uncertainty regarding US trade policy, with speculation that the US may impose tariffs of up to 20% on all imports and as much as 60% on Chinese goods.

If China retaliates, it could lead to disruptions in global grain and oilseed prices, indirectly affecting South African farmers who depend on stable international markets.

Nevertheless, the agricultural sector remains a vital pillar of South Africa’s economy, and Sihlobo expects a 3% growth from the sector in 2025.

While rising costs and trade uncertainties pose significant risks, the resilience of the industry, coupled with favorable weather conditions, provides hope for a stable and productive year ahead.