South Africa’s grain producers have applied for a review of the country’s wheat tariff to reduce market uncertainty caused by the cumbersome process by which it is currently implemented.
The tariff protecting local wheat production is currently only 41% of what it ought to be.
The tariff, of R176,29/tonne, was only gazetted 78 days after an international drop in wheat prices triggered the required administrative processes for the tariff to be implemented.
On 2 July, a further drop in international prices led to conditions requiring the tariff be increased to R421,95/tonne, but that tariff has still not been announced.
“The process of publishing a wheat import tariff in the Government Gazette can be described as administratively extensive, and it creates uncertainty in the market. When a tariff is triggered, it has to be approved by several government departments,” explains Heleen Viljoen, economist at producer representative organisation, Grain SA. “This process takes on average 44 days – whether a tariff is adjusted upward or downward.”
Two ministers and five government departments are involved in the process.
In June, Grain SA applied to the International Trade Administration Commission of South Africa (Itac) to have the current tariff regime changed.
“It was requested that the implementation and announcement of the tariff be made similar to that of the monthly announcement of the fuel prices by the Central Energy Fund (CEF),” said Viljoen.
“The CEF is the appointed, impartial body responsible for calculating the monthly fuel price. The CEF presents its calculated price to the relevant structures in order to be published monthly in the Government Gazette in order to be in effect on the first Wednesday of every month.
“Such a methodology will have the effect that the market can plan around the announcement of the import tariff.”
Under the current tariff regime, the international three-week moving average price of US no. 2 Hard Red Wheat must be below $279/tonne. This category of wheat is chosen because it is of similar quality to the wheat produced in South Africa.
Other factors taken into account for the subsidy to be introduced is the distortion factor, which is the effect the subsidy has on international markets, and the cost of transport from the market of origin.
South Africa only produces about half of its wheat consumption, whereas in the early 2000s it was still self-sufficient. According to Grain SA, one of the foremost reasons for the change is a decline in local competitiveness due to wheat imports from highly subsidised countries.
Grain SA is also requesting that the reference price of $279/tonne be reviewed, due to the wide fluctuations in international wheat prices in the past five years. In 2016 Itac had recommended that the reference price be reviewed every three years.
Viljoen pointed out that the only effect of an import tariff on local prices was that imports could only take place at $279/tonne. Any cheaper wheat must be imported at the reference price.
