South Africa’s wheat import tariff, designed to shield local producers from the effects of subsidies granted to producers in other wheat-exporting countries, has officially been published on 10 July this year. The recent increase in the tariff was triggered by a decline in international wheat prices below a specified threshold – also known in the industry as the ‘trigger level’ – prompting the need to provide South African producers with additional protection.

According to the South African Grain Information Service (Sagis), which calculates the tariff using a variable tax formula, the wheat import tariff increased from R549,50 to R851,50/t. This adjustment was published by the South African Revenue Service (SARS),following the triggering of the tariff on 27 May this year due to a sustained decline in international wheat prices over a three-week period.

Why adjustments are necessary Dr André van der Vyver, executive director of the South African Cereals and Oilseeds Trade Association (Sacota), believes that regular tariff adjustments are necessary to support the local industry during periods of low international prices. However, amid the high international prices of the Covid period, the import tariff was zero. He explains that as international and local market conditions alternate, a variable tariff plays a crucial role in ensuring local food security.

South Africa currently imports around

50% of its domestic wheat demand (approximately 3,5 million tonnes). These imports have steadily increased over the years with significant volumes sourced from Eastern European countries, Australia, and parts of Central and Northeastern Europe (Figure 1).

The previous tariff of R549,50/t represented roughly 8,5% of the Johannesburg Stock Exchange (JSE) wheat price in July this year, which stood at approximately R6 500. Despite the recent increase, he expects the impact on bread prices to be minimal. A 2006 study by Jooste et al. found that a 30% increase in domestic support (such as an import tariff) led to only a 1,43% rise in the price of bread. To his knowledge, however, no new studies have been conducted since then. He adds that the wheat tariff increase has a limited impact on consumers, as few people realise that wheat accounts for only about 23% of the retail price of a loaf of bread. “The actual impact on the final price is therefore  very small,” he explains. “The 23% already includes the import tariff, and even with the adjustment the tariff remains relatively low.”

How the tariff works

Sacota’s interest in the wheat import tariff stems from the fact that the organisation represents grain traders – those who actually import the wheat and are therefore responsible for paying the tariff. Naturally, this cost is passed on in the price of wheat. As a result, any changes to the import tariff, and especially delays in its implementation,  introduce  risk into the import process.  This risk must be absorbed by the industry because in most cases no one knows exactly when the new tariff will come into effect.

The current variable wheat tariff system dates back to 2016, when the industry and the International Trade Administration Commission of South Africa (ITAC) agreed on a formula designed to shield South African producers from the impact of international subsidies. The system also aims to maintain a consistent quality standard in local wheat production, as requested by local millers. According to Dr Van der Vyver, when an increase is needed, Grain SA typically submits an application to the ITAC. Conversely, the National Chamber of Milling (NCM) usually initiates the application process when a decrease is necessary.

Read full article in the Agbiz Grain Quarterly. 

 

By Christal-Lize Muller, Plaas Media