How load shedding affects food prices – through diesel

Johannesburg, 19 February 2024 – In the 2023 Budget Speech, the Minister of Finance announced tax relief measures to address the load shedding problem the country is facing. Lesedi Seforo, Project Director: Tax at the South African Institute of Chartered Accountants (SAICA), takes a look at how food prices have been impacted due to load shedding.

These are the measures the minister announced a year ago: “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. In light of the current 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.”

Recent inflation

There has always been a steady increase in the price of food. But things seem to have gotten out of hand over the past 2 years. Why is this? If I was the Minister of Electricity, I would focus my attention entirely on the war between Russia and Ukraine. And I wouldn’t be entirely wrong.

The Ukraine is a leading supplier of the world’s wheat, corn, sugar, animal feed and fertiliser. It also supplies over 45% of the world’s sunflower oil! And we know that most South Africans cook with sunflower oil.

Speak to any farmer, and they will tell you that the cost of animal feed and fertiliser has gone through the roof; automatically increasing the price of both meat and vegetables.

As the war between those two countries continues, Ukraine's exports have decreased. And economics tells us that reduced supply, together with an unchanging demand, means higher prices.

Having said that, European politics is just one factor explaining the rise in food prices. Another factor is electricity (or, in South Africa’s case, the lack thereof). Consider two of our leading food manufacturers: Tiger Brands and RCL Foods. The following brands come from these two companies alone: Tastic Rice, Ace Maize Meal, Selati Sugar, Sunbake Bread, Albany Bread, Morvite, Black Cat and Yum-Yum peanut butter, Rainbow Chicken, Nola Mayonnaise, Koo, Jungle Oats, Oros, All-Gold – all of these much-loved brands consumed in large quantities by many households.

Increased diesel use

What happens to these companies when the power goes off? The generators must come on ...

These manufacturers have had to invest millions of rands in generators, which require constant maintenance (money) to avoid breakdowns. And most generators run on diesel.

Recent increases in the price of diesel have not helped; not only affecting food transportation costs, but now also the cost of running these generators.

Look at RCL Foods’[1] diesel usage over the past 3 financial years:

There was a 19% increase in diesel usage between the 2022 and 2023 financial years. And of course, the increased cost would have been passed on to consumers.

Tiger Brands[2], on the other hand, noted in its 2023 Annual Report that its ‘load shedding costs’ amounted to R126 million; significantly affecting its bakery business (i.e. bread).

Another food manufacturer, Libstar, has reported that it has already spent more on diesel in its first 6 months of 2023, than it did during its entire 2022 financial year[3]. This will inevitably mean significantly increased food prices in 2024.

What about retailers?

As we move along the supply chain from manufacturers to retailers, things unfortunately go from bad to worse.

The Shoprite Group is Africa’s largest retailer by sales, market capitalisation, profit, employees and customers.

Its 2023 Annual Report reveals a whopping R1.3 billion in diesel expenses for generator usage!

This was to ensure that all its stores continued to trade during load shedding.

The below table[4] provides a glimpse into the diesel costs incurred by our leading retailers during their 2023 financial years.

These retailers cannot bear the full cost and must surely pass these costs on to consumers.

Pick n Pay’s 2023 Annual Report records a further insight into the impact of its increased diesel usage; a 14% year-on-year increase in its carbon emissions.

The irony is that South Africa committed under the Paris Climate Accords to drastically reduce its emissions. And yet government’s mismanagement of Eskom had led to more diesel usage, thereby undermining government’s own good intentions.

If you pay attention to the price of diesel, you may be aware that a portion of the price includes a fuel levy and RAF levy. As at 16 February 2024, these levies comprise over 25% of the total price per litre.

In April 2023, the government introduced a mechanism to enable manufacturers of foodstuffs to obtain a refund from SARS for the portion of the diesel costs attributable to fuel levies. This SARS rebate does not, regrettably, apply to retailers, despite the industry’s lobbying efforts.

The rebate would go a long way to reducing these companies’ diesel costs and ultimately, our food prices.

SAICA believes it would be beneficial if, in his 2024 Budget Speech, the Finance Minister announced a further extension of the diesel rebate to

• food manufacturers in general, not just limited to those who manufacture foodstuffs;
• wholesalers; and
• retailers.

If this doesn’t transpire, we may have to consider fasting as a more permanent feature of our lives.

About SAICA

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is recognised as the world’s leading accounting institute and is home to the leading CA designation in the world The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

Chartered Accountants are highly valued for their versatile skill set and creative lateral thinking, that's why all of the top 100 Global Brands employ Chartered Accountants.

SAICA is a member of Chartered Accountants Worldwide (CAW), a global family that connects over 1,8 million fellow Chartered Accountants and students in more than 190 countries. Together, we support, develop, and promote the role of Chartered Accountants as trusted business leaders, difference-makers, and advisers.

SAICA Media Contacts

Kgauhelo Dioka, ***@saica.co.za

Project Manager: Communications

SAICA Brand Division

Renette Human, ***@saica.co.za

Project Director: Communications

SAICA Brand Division

[1] RCL Food brands include Sunbake bread, Selati Sugar and Rainbow Chicken.

[2] For context, the company’s leading brands include Oros, Morvite, Jungle Oats, Koo , Ace Maize Meal, Cross & Blackwell, Albany Bread, All-gold, Black Cat, Tastic, Beacon, Mrs Balls Chutney, Fattis & Monis

[3] 2023 Interim Financial Results. R45 million in the 6 months of its 2023 financial year vs R39 million in its entire 2022 financial year.

[4] Data publicly available from each company’s 2023 annual report, accessible on the internet.

[5] Woolworths has stated in its 2023 Annual Report that “…we have quantified the direct impact on our food waste and diesel costs across our store network and supply chain at between R20m to R30m per month…”