The Consumer Goods Council of SA (CGCSA) says retailers should not be paying the Road Accident Fund (RAF) and fuel levy included in the diesel price, when the fuel is used to power food production.
Diesel for power generation is adding another layer of costs to doing business and is used in farming, food processing, cold storage and in retail stores. Shoprite announced on Tuesday it had spent R560bn on diesel to mitigate higher stages of load-shedding.
About a third of the diesel price toward taxes with R2.18 going to Road Accident Fund (RAF) levy and R3.70 to a general levy. The RAF levy is used to pay for a state insurance fund for accident victims.
“Diesel costs are skyrocketing and retailers continue to pay the fuel and RAF levy for fuel used in generators, which in our view should not be the case,” said Zinhle Tyikwe, CEO of the CGCSA, which represents retailers and consumer goods manufacturers.
She said retail stores, which must keep food cold and ensure food safety, had no choice but to invest in other energy sources as Eskom clearly cannot guarantee reliability of power supplies for the foreseeable future.
“However, it is important to highlight that the whole food value chain, from farm to fork, is negatively impacted.”
Food producers and retailers are relying on diesel and generators to keep consumers fed.
Pioneer owner PepsiCo, which makes Sasko bread and White Star Maize, told Business Day in December it had to increase the number of generators at its mills as it could not manage stage five and six load-shedding and meet customer demand without installing additional power supply.
When Business Day asked food producer Tiger Brands if its bakeries could manage high levels of load-shedding, it said they continued bread production, but it was costly.
“Each bakery has adequate back-up generator capacity to run the entire plant from end to end, including all machinery. During load-shedding, the switch from grid to generator and back is fully automated with minimal impact on the production process.”
But it said the downside of running generators at manufacturing sites is the cost incurred in using diesel, which has increased significantly in recent months.
Tiger Brands, like all food producers, cannot just pass on costs to retailers and consumers. When it raised Albany bread prices about a year ago, consumers switched to competitors and sales plunged until it cut prices.
Asked about the cost of load-shedding, Tiger Brands said it had to balance increasing prices with consumers buying less when under pressure.
Balancing higher input costs “requires ongoing agility and judicious price and volume management in the face of a challenged consumer. Consumer households are under increasing financial pressure”, it said.
Astral, SA’s largest poultry producer, said last week it was losing money on chickens as it could not pass on costs caused by power and water disruptions to consumers.
However, ultimately prices could rise as more and more diesel is used to run retail and food production sites.
“There is no doubt that, overall, rising input costs from running generators can potentially impact food prices, even though we understand retailers are trying to absorb these costs,” Tyikwe said.
“But a limit will be reached beyond which prices may unfortunately have to be increased to ensure business viability.”
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