Tiger Brands budgets US$6.4m in capital expenditure to mitigate the impact of power cuts in second half of its financial year

SOUTH AFRICA – Tiger Brands, one of the biggest food producers in Africa, has allocated 120 million rand (US$6.4 million) in capital expenditure for the second half of its financial year to mitigate the impact of power cuts, the group’s Chief Manufacturing Officer Derek McKernan said.

This investment encompasses additional backup generators, fuel and water storage facilities, rooftop solar, mobile generators, and water tanks to be operational from July.

The investment shows the dire situation South African food producers are facing. Being among the biggest investors on the continent, the companies are spending hundreds of millions of rand mitigating prolonged rolling power blackouts, water supply issues, and crumbling infrastructure.

The financing, sometimes at the cost of essential capital expenditure, will eventually be passed onto consumers, making food prices higher for longer, food companies, economists, and lobby groups told Reuters.

“We are very aware of the struggles that consumers are going through … but inevitably some of it will be passed onto our consumers unfortunately,” McKernan explained.

For most of this year, the country was in the throes of “stage 6 loadshedding” with almost 10 hours of daily power cuts, forcing companies to scramble for alternative power and water sources.

South Africa is facing daily power cuts – its worst in history – as creaking, old power plants breakdown, plunging Africa’s most industrialized economy into prolonged blackouts.

Premier Group’s CEO Kobus Gertenbach also recently said the company is amongst the top five food producers, and has invested in diesel generators and boreholes to isolate any impact of power cuts up to 16 hours a day.

Other companies like Rival Libstar have built storage capacity to ensure up to three days of production at most sites while poultry producer Astral, a diversified food producers AVI, and RCL Foods have indicated in their recent earnings statements the mitigating measures would eventually translate into higher food prices.

Despite South Africa’s food price inflation in May easing to 11.8% from 13.9% in April, it remains high, hovering in double-digits.

South Africa’s Agriculture, Land Reform, and Rural Development Minister Thoko Didiza had in the past few months assured that the government had put in place contingency plans to safeguard key food-production facilities against an escalation in power cuts that are already at record levels.

However, stakeholders, including farmers, are worrying there could eventually be a threat to food security if the situation persists and no immediate measures are implemented.

The South African Cane Growers’ Association estimates that continued power cuts between stages 4 and 6 would translate to a loss of 724 million rand in irrigated areas, its CEO Thomas Funke, said.

While a stage 8 could mean a loss of 2.4 billion rands and an almost 65 tonnes per hectare drop in yield, besides hitting the entire value chain, he noted.

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