‘If you don't want to pay more, use less': Parliament debates new water caps for farmers

The Citizen

5 days ago

There are fears that removing the water caps will lead to food price increases.
The Department of Water and Sanitation on Tuesday addressed a revised strategy that will gradually remove water price caps for farmers.
This triggered a parliamentary debate over potential food price increases and threats to vulnerable farming communities.
The new strategy, gazetted in June 2024 after more than a decade of development, represents a significant departure from apartheid-era policies that kept water cheap for certain sectors.
The department said the policy was approved by the minister of finance and is set for implementation in April 2026.
The pricing strategy is mandated by sections 56 to 60 of the National Water Act of 1998, which requires periodic updates approved by both the Minister of Water and Sanitation and the Minister of Finance.
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Changes to water pricing framework
The revised strategy introduces six user categories, expanding from the previous three-category system.
Strategic users, industry and mining, and municipal users now have separate categories, allowing for more targeted pricing mechanisms.
A new non-consumptive use category has been created for activities such as hydropower generation and solar panel installations on dam surfaces.
Phillips explained the rationale behind the changes, noting that 'the fiscal system and model of the country is that water must be financially self-sustaining', apart from the equitable share allocated to municipalities for providing free basic water to indigent communities.
The department has also restructured agricultural pricing, moving from a general 'irrigation' category to a more specific 'agriculture' classification designed to distinguish between food security agriculture and non-food security activities.
This change aims to create 'a clearer and transparent tariffing mechanism', according to departmental officials.
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Gradual removal of price caps
The most significant change involves the gradual removal of price caps on irrigation water, which has been subsidised since the apartheid era.
Phillips acknowledged this historical context, stating that 'since the days of apartheid there's been a cap on the price of irrigation water in particular' and suggested it was 'probably a policy of the apartheid government to support white farmers to keep water cheap for them'.
The impact of these caps has been substantial, given that irrigators consume 60% of South Africa's water resources.
Phillips noted that 'this cap on the price of irrigation water had a huge impact on the funding available for the management and operation of the national water resources infrastructure'.
However, the department has agreed with National Treasury to implement changes gradually to avoid sudden food price increases.
'We need to be extremely careful that removal of the caps on the price of irrigation water doesn't result in a rapid increase in the cost of food and food prices which would have a very detrimental impact on the poor in particular,' Phillips explained.
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MPs raise food security concerns
MK party MP Visvin Gopal Reddy led criticism against the policy during parliamentary proceedings, expressing alarm over its potential impact on food affordability.
'The removal of price caps surely is going to lead to significantly higher water costs for all users, and I'm specifically talking about vulnerable communities and agricultural producers,' Reddy warned.
He emphasised the knock-on effects for consumers, stating: 'If agricultural producers are going to have to pay more, they're going to recover that from the cost of their produce. And then who is impacted by this? It is the person who's buying it.'
Reddy called for 'a longer phasing-in period with explicit social protection subsidies'.
He questioned whether the department had conducted comprehensive socioeconomic impact assessments on food prices and rural employment.
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Government defends economic rationale
Deputy Minister of Water and Sanitation, David Mahlobo, acknowledged the contentious nature of the policy but defended the government's approach.
'We have to get enough money from revenue from the sale of water to farmers to be able to maintain the dams and the conveyancing infrastructure so that they keep providing them with water,' he said.
Mahlobo noted that historically, the apartheid government had used administrative pricing for water and electricity 'to keep the country going', but emphasised that international benchmarking showed South Africa's water prices had not been comparable to countries of similar size.
The deputy minister stressed that 'this is a policy intention. There are discussions and it can't be concluded by the department alone,' highlighting ongoing engagement with the National Treasury and department of agriculture.
Infrastructure crisis drives policy change
The department's director-general, Dr Sean Phillips, provided the technical justification for the policy shift, warning that current price caps were preventing adequate maintenance of irrigation infrastructure.
'The problem is that if you look at the infrastructure that is used to provide irrigation water to farmers, it's the dams and it's canals – irrigation conveyancing canals,' Phillips explained.
He warned that many irrigation conveyancing canals were 'in a bad condition because they haven't been adequately maintained, because we don't get enough revenue from the sale of water to farmers because of these caps on the price of irrigation water'.
Phillips stressed the unsustainability of the current system, stating: 'If we carry on with this in the same way without doing sufficient maintenance on that conveyancing infrastructure it'll mean that the farmers eventually won't get water, let alone have to pay more for it.'
The director-general emphasised that the economic impact of failing water infrastructure would be far greater than the cost of gradually reducing price caps.
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Economic context and timing concerns
The pricing strategy comes at a time when South Africa's economy faces significant challenges.
ANC MP Keamotseng Stanley Ramaila highlighted the country's economic pressures, including high inflation, unemployment and global trade wars.
Ramaila questioned whether the timing was appropriate to reconsider price regulations.
Mahlobo acknowledged these concerns, stating that 'whatever final decision in the trade engagement between ourselves as a nation and the United States of America' would have implications that must be factored into ongoing assessments.
Protection measures for vulnerable farmers
The department emphasised measures to protect vulnerable farming communities from the policy's impact.
Phillips pointed to provisions in their presentation showing how 'emerging farmers are going to be given a waiver for raw water pricing strategies from paying for the raw water'.
The policy includes specific protections for small and emerging farmers to receive waivers from the new pricing structure, alongside existing support mechanisms, including free basic water services for indigent households and heritage water allocations for resource-poor farmers.
However, MPs argued these protections may be insufficient given the broader economic pressures facing the agricultural sector.
Economic impact assessment promised
In response to concerns about food price impacts, Phillips committed to conducting 'proper economic analysis… on the impact on food prices'.
He assured parliament that the 'treasury will require us to slow down the removal of the caps if it does result in an increase in food prices, which is harmful to the economy and harmful to the poor'.
The department plans to hire professional economists to conduct economic impact assessments at each stage of the gradual cap removal process.
It will also monitor effects on food production and pricing.
No money to subsidise water costs
Phillips addressed questions about subsidising water costs, pointing to the country's fiscal limitations.
'There's no money currently in the fiscus for new programmes and new subsidies,' he explained.
He questioned whether subsidies were the most economically efficient approach, asking: 'Given that water is an input cost for commercial infrastructure and maintaining the infrastructure to provide that water is part of the input costs, isn't it more economically efficient for the input costs for agriculture to be priced realistically rather than to be subsidised?'
Municipal debt crisis compounds challenges
The department continues to grapple with municipal debt challenges that have exacerbated the water sector's financial crisis.
During the Covid-19 pandemic, the national government decided not to increase water prices to cushion consumers from administrative price increases.
However, local governments proceeded with increases, forcing water boards to subsidise them.
'Some of these water boards, especially the high-risk ones, never fully recovered,' Mahlobo explained.
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This situation has threatened the viability of the water sector, with some institutions unable to maintain adequate infrastructure due to insufficient revenue.
The department has introduced credit control measures, including withholding equitable share payments from municipalities in debt.
'About 40 entities have received letters that their equitable share for July, which they normally get on a quarterly basis, they're not going to receive it,' Mahlobo announced.
While Mangaung Metropolitan Municipality has begun paying current invoices in full, it still carries substantial historic debt.
Mafikeng Municipality remains problematic, continuing to default on current invoice payments to Vaal Central Water Board.
'Mafikeng is one of the municipalities whose equitable share is being withheld this month to try and force them to pay their current invoice in full,' the director-general confirmed.
Water conservation and demand management
The deputy minister emphasised water conservation as crucial to managing costs.
'If you don't want to pay more water so that you are able to manage whatever you have in your water balance, you have to implement technologies yourselves,' Mahlobo stated.
He stressed that 'agriculture must be able to produce more but using less crops'.
The policy aims to incentivise water conservation and demand management while ensuring adequate revenue for infrastructure maintenance.
'The idea in the pricing strategy has to do with the protection of the resource. The resource is finite. We must protect it,' Mahlobo emphasised.
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