Dec 09, 2015

Electrical Rates Double for Brazilian Farmers

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Farmers always have a lot to worry about such as the weather and commodity prices, but Brazilian farmers have had an added worry in recent years and that is increasing costs for electricity. Electricity costs in Brazil have doubled in the last year as the federal government imposed fare hikes and additional taxes in an attempt to hold down electrical consumption as a way to conserve water in the nation's hydroelectric reservoirs.

The increases have hit all phases of Brazilian agriculture, but particularly hard hit have been farmers who rely on irrigation and livestock producers. A prime example are rice producers in the state of Rio Grande do Sul. The state producers more than 60% of Brazil's rice and 100% of the rice produced in the state is irrigated. The irrigation pumps are electrical and the costs to run the pumps are a significant part of the cost of production.

The electrical rates in Rio Grande do Sul are up 104% compared to a year earlier. One of the main reasons for the increase has been a new system of deferential pricing which charges higher rates at peak times and lower rates at non-peak times. The peak time is designated as between 6:30 am and 7:00 pm. The cheapest electricity is from 10:00 pm to 6:30 am.

In December of 2014 the cost per kilowatt hour in Rio Grande do Sul was R$ 0.06 during the non-peak time and R$ 0.16 during the peak time. In December of 2015, those same rates are R$ 0.14 and R$ 0.28 respectively. The differential pricing alone represents 23% of the increased electrical costs. Farmers who use irrigation are forced to consume large amounts of electricity during the peak demand times. Only running the pumps during the non-peak time would not allow enough time to keep the crops adequately hydrated.

Livestock producers have also been hard hit especially poultry producers who must keep ventilation fans running during the peak demand times, especially during the hot summer months. They do not have the option of turning off the fans in order to save electricity. The same can be said for dairy farmers as well.

To address this problem, the Brazilian Congress recently passed legislation that would exempt agricultural users and irrigators from the differential pricing. President Rousseff has not yet indicated if she will sign the legislation or not.