New wheat tariff leaves farmers in the lurch
What little protection South African wheat producers had is gone, since the Department of Trade and Industry replaced the existing 2% ad valorem tariff, translating into between R40/t and R50/t of wheat, with an old formula-based tariff in December.
The new variable tariff formula is the same one used before the ad valorem tariff, according to Nico Hawkins of Grain SA. It’s based on a minimum international wheat price of US$157/t (R1 576) for American Hard Red Nr. 2. The variable formula tariff was negotiated after deregulation in 1999, when US$157/ t was established as the floor price, calculated as a historic average over the last 10 years for American Hard Red Nr. 2, explained Hawkins.
But according to Andries Theron, chairperson of Grain SA’s winter grain study group, the US$157/t floor price is outdated and completely useless as a protection measure for South African wheat producers. “The International Trade Administration Commission of South Africa (ITAC) ignored all the presentations and inputs from Grain SA, and this new tariff is the result,” said Theron.
“We repeatedly stressed that US$157/t is not a realistic floor price, as grain farmers in South Africa can’t produce at such a low price. A more realistic floor price would be in the order of US$300/t (R3 012).”ITAC admitted that it received requests from Grain SA and the National Chamber of Milling (NCM), to change the old variable tariff structure. However, it had reasoned that the NCM’s request for a domestic reference price under US$157/t, would remove all protection, thus favouring the secondary industry disproportionately.
Thembinkosi Gamlashe, ITAC communications manager, told Farmer’s Weekly that Grain SA’s request that unsubsidised Argentine wheat be used as a reference price was rejected as it would have heavily increased the duty levied.ITAC concluded that due to current high international wheat prices, and because South Africa is a nett importer of wheat, the possible downstream effects on food prices did not warrant changing the US$157/t protection level.
According to ITAC, the variable tariff formula is better suited to agricultural commodities, as it protects the industry when world prices fall below the world long-term price, but doesn’t inflate prices with duties when international prices are high. – Wouter Kriel