International trade consulting firm, XA Global Trade Advisors, has come out in support of the recently gazetted duties on imported wheat to protect the local agricultural industry.
The International Trade Administration Commission of South Africa (ITAC) recently issued a gazette targeting tariffs for wheat and wheat flour by increasing the associated customs duties.
In a statement, XA trade analyst Tafara Muguti, said this was to ensure stable wheat prices as the import duty acted as a buffer against extreme market fluctuations.
Muguti who noted that wheat import duties had remained duty-free for a considerable amount of time, said: “Adjustments are triggered when the average price of wheat over the past three weeks deviates significantly (by more than $10 per ton) from the price used for the last duty calculation.”
“This deviation can be either a sharp decline or a sudden spike and needs to persist for three consecutive weeks to activate a duty adjustment. However, the new gazette dated 19 July 2024 has introduced new customs duties for wheat imports.”
Wandile Sihlobo, chief economist at the Agricultural Business Chamber of SA, said South Africa was a net wheat importer, and July 12 was the 41st week of the 2023/24 marketing year.
“South Africa's 2023/24 wheat imports totalled 1.5 million tons out of the seasonal forecast of 1.6m tons. The major wheat suppliers include Poland, Lithuania, Latvia, Russia, and Australia,” Sihlobo said.
Grain SA economist, Heleen Viljoen, said that during the early 2000’s South Africa provided the majority of local demand but this self-sufficiency had decreased dramatically over the last decade.
“This is due to various reasons, but one of the largest contributors is the decrease in local competitiveness due to wheat imports from highly subsidised countries,” she said.
“Thus, there was a need to protect our local industry, but most important there was a need to provide the industry with a breathing space to invest in research and development in order to revive the industry.”
Viljoen said the variable tariff dispensation operated on the premise that local prices should be equal to a long-term world reference price after adjustments for transport costs, and the subsidies implemented by other wheat-producing countries were made.
She said the wheat price would not increase and the only effect would be that the product would now only be imported at the $279 dollar level.
“This means lower imports just moved to the reference price - the same level as before the increase,” she said.
Viljoen said the wheat price will only increase when the international prices increase above $279 and it would also mean that the tariff would be removed when the exchange rate weakened.
She said the wheat price only contributed 20% towards the overall price of a loaf of bread. “This is only four slices of a loaf. This means if the tariff increases with R367.09/ton, the bread price, in a worst case scenario, can only increase by 22c (1 700 loaves from a ton of wheat).
“Remember the import tariff does not increase prices, it only changes the import price to a $279 level. In some periods the wheat prices decreased drastically and it had no effect on the bread prices.”
Viljoen said local producers should be protected and the country could not continue importing cheap wheat because the local industry would just stop producing wheat, which would have a negative effect on social and rural economies.
“Thus, in the long run, South Africa will experience enormous losses, not to mention the risk in terms of food security. It is also a concern in terms of quality. South Africa produces very high quality wheat and if we import lower priced wheat, we will also import lower quality,” she said.
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