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Increasing Electricity Tariffs Will Have Disastrous Effects on the Livestock Sector in ZambiaBy Chisoni Mumba, PhD on 14 Apr 2019
On 28th March, News Diggers published my article titled, “Foot and Mouth Disease, drought and a harsh economy: a triple tragedy for the livestock markets and trade in Zambia”. In this article, I elucidated how these factors have disrupted livestock markets and trade. Those who wish to follow the story and participate in the discourse can find the article on this link https://diggers.news/guest-diggers/2019/03/28/foot-and-mouth-disease-drought-and-a-harsh-economy-a-triple-tragedy-for-livestock-markets-and-trade-in-zambia/.
As if disease, drought, and a harsh economy have not crippled livestock markets enough, the Zambia Electricity Supply Cooperation (ZESCO) has made an application to the Energy Regulation Board (ERB) seeking for authority to increase electricity tariffs by a weighted average rate of 113% and 213% for connection fees (ERB 2019). It should be noted that drought, disease and high electricity tariffs are severe threats to livestock production in any economy. They have the potential to cut off any marginal gains that have been scored under this sector. ZESCO has cited the following factors as having necessitated a review of its tariffs: prevailing macroeconomic conditions; need for system and customer base expansion; rising cost of generating power from ZESCO’s infrastructure and Independent Power Producers (IPPs); suspension of the Cost of Service Study (CoSS); and rising cost of connecting customers to the grid.
Much as the reasons are justified, the proposal has come at a wrong time when several sectors of the Zambian economy are at their lowest ebb. How will this proposal affect the livestock sector if it was to be approved this year? Perhaps we should start by looking at what happened to the livestock sector after the 2017 increment in electricity tariffs and fuel by providing a few examples.
Electricity and fuel are critical factors of production for the livestock sector. Animal feed producers have to transport maize from the bulking centres to the milling plants, and the milling plants have to use electricity to manufacturer the feed that is later transported to retailers. Similarly, Veterinarians and Agro-vet suppliers have to procure, transport and refrigerate medicines, vaccines, and allied substances. Another factor worth noting is that the livestock industry is quite diverse. It includes the rapid growing aquaculture sector (with assisted aeration of ponds using electricity), the Broiler sub-sector of the Poultry Industry, another electricity dependent sector, the Dairy industry (for milk cooling), to mention just a few. In 2017, when the price of electricity and fuel were previously increased by 50%, the prices of feed for broiler chickens shot up to an average of K250 per bag, representing an increment of over 30%. A lot of small-scale farmers were pushed out of the market due to high production costs. The price of chicken also went up to an average of about k45.00 from K30.00. This is where we are standing now. Farmers were expecting prices to go down after the 2019 crop harvest, but I have doubts this will happen looking at the drought that we have had in Southern, Western, Central and Lusaka provinces. ERB will hit the last nail in the coffin (farmers’ expectations of reduced feed prices) if they approve the electricity tariffs after a public hearing. We expect to see low economic growth from the livestock sector, which contributes more than 35% of the total share of agriculture to Gross Domestic Product (GDP).
The smallholder dairy subsector, which produces more than 50% of milk in Zambia, was not spared by the previously increased electricity tariffs, which increased the cost of chilling milk in cooler tanks at bulking centres. The smallholder dairy subsector is heavily dependent on cooling systems at Milk Collection Centres, which requires power 24/7 throughout the year. What will happen to this already struggling subsector if ERB approves the proposed electricity tariffs?
Talk about the cold storage rooms and refrigerators that stock chilled meat and meat products in the beef subsector. These require heavy use of electricity. Will increasing the electricity tariff not close most of these businesses or indeed increase prices of products to beyond affordable levels? More than 90% of the Zambian population depends on animal-source protein meaning that most of the income will go towards beef, pork, chicken, eggs, and etcetera. Perhaps we want to increase the national level of under-nutrition from the current 40% by making animal-source protein unaffordable.
The veterinarians also raised the prices of services such as house calls, farm visits, preventive and curative services in response to increased commodity prices due to among other things, the previously increased electricity tariffs. If the proposed electricity tariffs are approved, livestock producers and other actors may not have access to this already expensive but critical service to the livestock industry.
As I said earlier, I understand that the cost of production of electricity is too high and cannot be sustained with current non-cost-reflective tariffs, but this is just a wrong time to do it, especially that the sector is struggling with the current drought and heavy burden of disease. Look at what the Botswana Government has done to protect the livestock sector from the effect of drought. They are proactive and look at the scenario more realistically. The Government has subsidised prices of livestock inputs by 25% to cushion the effect of drought (see figure 1). This shows how they seriously treasure this critical sector of the economy, which Zambia has only managed to sing about without an equal measure of practical prioritisation as one of the areas for the export-led diversification agenda. Can Zambia through ERB at least cushion the effect of drought and Foot and Mouth Disease on livestock by NOT APPROVING the proposed increase of electricity tariffs? The livestock sector technical advisory group if ever it exists needs to wake up and look at these issues critically! Boma ilanganepo mwebanthu sure!
Deductively, tariff costs, recent veterinary checkpoints for FMD control, market restrictions (through livestock movement bans), increased transportation costs, increased electricity costs, coupled with a collapsing economy is presenting a worst case scenario and a high likelihood to send shock waves through the Zambian livestock industry with unknown ripple effects on other sectors. Accordingly, there is an urgent need for those responsible for undertaking a critical analysis based on an assessment of the potential impact that these highlighted factors will have on the industry.
In conclusion, I call upon the Veterinary Association of Zambia (VAZ), Zambia National Farmers Union (ZNFU), and other livestock farmer organisations or stakeholders to stand with actors in the livestock value chains, by ably representing them through written submissions at the ERB public hearing on ZESCO’s proposal of increasing electricity tariffs, which closes on 23rd April 2019. I also call upon the ERB and stakeholders to seriously reflect on this and defer the proposed increment of electricity tariff until the economy stabilises. ERB, you have been given a harmer to hit the last nail in the livestock industry’s coffin, will you hit it?
(Dr Chisoni Mumba (PhD) is a Lecturer of Livestock / Animal Health Economics at the University of Zambia, School of Veterinary Medicine. Email: email@example.com , Mobile: +260977717258)Related Items
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