In an environment where agribusinesses and farmers faced rising input costs and higher interest rates, the implementation of the refund on the Road Accident Fund (RAF) levy for diesel used in the manufacturing process, such as for generators from April this year for two years is a laudable intervention, that would also help ease consumer food price inflation, according to Agricultural Business Chamber chief economist Wandile Sihlobo.
Reacting to South Africa’s Budget for this year, delivered by Finance Minister Enoch Godongwana on Wednesday, Sihlobo said that they initially feared that food price inflation would remain elevated, partly because of rising energy costs and the unreliability of the power supply.
Paul Makube, senior agricultural economist, FNB Commercial, said that the consumer was also not left out as the combination of tax relief of R13 billion, including zero increases in the general fuel and the RAF levies would provide some relief to them.
“Agribusiness will benefit from being included in the refund of the (Road) Accident Fund levy for diesel used in the manufacturing process, given the huge costs associated with operating generators for extended periods due to load shedding. Further, the general fuel levy and the Road Accident Fund levy has not been increased, thus alleviating pressure due to the already high fuel costs,” Makube said.
Roelie van Reenen, the supply chain executive at Beefmaster Group, said this year’s Budget recognises the burden on South African consumers due to the electricity crisis, which has highlighted the cost of food production.
“The government acknowledges that food manufacturers may have no other option but to pass on the increased cost of production to an already struggling consumer, which they are trying to address through targeted measures. We are particularly pleased that the government plans to ease the impact of the electricity crisis on food prices by extending the refund on the Road Accident Fund levy to food manufacturers. This refund will apply to diesel used in the manufacturing process, including for generators,” Van Reenen said.
Nico Groenewald, the head of agribusiness at Standard Bank, said the national Budget’s extension of the fuel levy refund provides welcome relief.
“In particular, this will enable broader agriculture value chains to assist downstream businesses with cost absorption, especially the added costs created by logistical and power constraints. This relief will also support food security, especially the availability and affordability of food,” Groenewald said.
Sihlobo said that the intervention for businesses to reduce their taxable income by 125% of the cost of an investment in renewables will help ease cost pressure on businesses and hopefully incentivise increased renewable installations.
Makube said that on the energy reform, the agriculture sector had already embraced alternative energy with various solar installations at farms and packhouses. He said the announced reforms of a reduction of taxable income by 125% of the cost of an investment in renewables with no thresholds to project size is a bold move that will accelerate adoption in the sector.
The senior agricultural economist said that the finance minister delivered a much-anticipated Budget that was generally positive and hopefully set South Africa on a path to further economic reforms.
He said Budget 2023 was done under an extremely difficult economic climate and the positive windfall in revenue collection of R1.69 trillion for 2022/23, which is R93.7 billion above the estimates of the 2022 budget and R10.3 billion above the estimates of the 2022 medium-term budget policy statement.
Makube said there are several positives for the agriculture sector, the first being the required allocation to Eskom to deal with the energy crisis as load shedding has started to impact negatively on food production and was thus a potential threat to food security. “A total debt relief of R254 billion will go a long way in enhancing (Eskom) operations and ensure a speedy recovery to its energy fleet. Crumbling infrastructure in terms of roads, rail, ports, as well as poor services at municipal level have been a bone of contention and the allocation of R351.1bn for transport and logistics is welcome but implementation is key,” Makube said.
Sihlobo lauded Godongwana’s focus on Eskom’s debt and the debt relief arrangement, which helps the power utility to have the flexibility to prioritise capital expenditure in transmission and invest in the maintenance of the existing generation fleet to improve the availability of electricity. “The increased focus on infrastructure, specifically water and road, is also encouraging. These network industries are critical for the agriculture and agribusiness sectors, where irrigation is increasingly essential, and over two-thirds of the produce in the sector is transported by road.”
The Beefmaster Group said the government’s focus on infrastructure investment in rural areas such as the Eastern Cape, Mpumalanga, and Limpopo was encouraging. “For impoverished communities, the cost of food is expensive when adding on long commutes. The building of bridges in these communities will go a long way in providing relief to the poorest of the poor in South Africa,” it said.
Click here to view Business Report’s full coverage of the budget speech.
BUSINESS REPORT