SA has seen yet another wave of new and extreme import duties this year on everything from chicken and French fries to tyres.
Not only are there glaring faults in the calculation of these levies, but the reality is that these funds will be used to line government coffers instead of growing local industries — all while inflating prices and hammering the pockets of the country’s most poor and vulnerable.
Anti-dumping duties are calculated and imposed by the International Trade Administration Commission (Itac) and the department of trade, industry & competition in a supposed bid to protect vital local industries and jobs. Yet both continuously fail to first engage with industry players to understand their environment or concerns before unilaterally decreeing new tariff schedules — a fault noted by multiple businesses and organisations.
Had they done so, they would have understood that in many cases businesses import basic goods because SA simply lacks the production capacity to meet the local market’s demands — a fact recently noted by Gavin Kelly of the Road Freight Association in response to the 38.8% levy imposed on imported tyres.
Those in favour of these tariffs argue that they are necessary for giving local producers the space needed to become more competitive with overseas importers. By preventing local producers from being undercut by overseas businesses, tariffs theoretically give them time to diversify and develop innovative new products, address inefficiencies, and expand their operations to benefit from economies of scale.
However, in practice tariffs often drive up costs without any meaningful impact on industry growth, job creation or domestic competitiveness, allowing local producers to charge higher prices without investing towards expansion.
Poultry industry
To demonstrate the point, first consider the example of the poultry industry. In 2013 government imposed new anti-dumping duties on chicken products of up to 82%. In 2020 it added another levy of 62% on individual frozen pieces, a favourite staple food among low-income households.
But as economist and Business Day columnist Neva Makgetla observed in a working paper for the SA Reserve Bank, the price of poultry in rand terms has climbed faster than import prices in recent years, the producer price for poultry has risen 10% faster than inflation in real terms, and tariffs did not lead to any substantial increase in domestic production.
Likewise, local French fry manufacturers have been gifted a new raft of duties on European imports, including levies of more than 180% on German imports — this though German imports only account for about 6% of total import volumes, and as such are unlikely to have had any material impact on local prices.
In a nonconfidential response to these tariffs, the European Potato Processors’ Association pointed out that the three major local potato manufacturers imported French fries themselves to supplement their domestic supplies. In addition, it noted that Itac’s calculations were largely based on numbers dating from July 2018 to July 2019 that were simply adjusted for inflation. However, the price of frozen chips is largely determined by the price of potatoes, which is determined by the size of potato harvests, making the consumer price index largely irrelevant.
Adding further insult to injury, the German tariff was reportedly established using a figure from a single advertisement on a single day in August 2021, rather than obtaining a fair or representative sample figure. Next, the cost of supposed injury to the industry was calculated using input from a single local manufacturer that imports from Asia and South America rather than Europe — the same manufacturer that in May warned its clients of looming French fry shortages owing to supply constraints.
Finally, it is worth noting that local French fry makers have enjoyed the benefits of tariff protection since 2013. Yet nine years later they still do not produce enough frozen chips to support the local market’s needs, pointing to a lack of investment in growing their operational capacity.
A four-point solution
This is not to dispute the importance of localisation, or supporting local businesses to promote job creation and greater economic prosperity. As food distributors we would welcome the opportunity to purchase more locally produced goods, which are often cheaper than European imports. This would shorten our supply chain and reduce our transportation costs, while creating more opportunities to export SA products to our network throughout the rest of Africa.
However, we do need to acknowledge the damage being caused by irrational tariffs and the failures of the government’s process for calculating duties. While perhaps well intentioned, these have in effect boosted prices and worsened the financial pressure facing low-income households.
There are four simple solutions to remedy the situation. First, the government should engage with all relevant role players in affected industries to improve its decision-making process. Constructive and transparent dialogue is urgently needed to ensure tariffs serve the needs of the country at large, as opposed to the interests of a select few.
Second, more funding should be directed towards growing the very industries the levies are supposed to protect. As a country we need to ask ourselves why so many local producers are unable to compete against imports, and provide the support needed to build self-sustaining, future-proof industries.
Third, local industries benefiting from tariffs need to make concrete commitments towards expanding their production capacity, complete with detailed investment amounts, targets and deadlines.
Fourth, the government should consider urgently suspending import tariffs until February or until it has concluded this process, as it did for chicken earlier this year.
The timing of these new duties is already problematic in light of the growing cost-of-living crisis facing the country. A suspension would bring immediate and welcome relief to millions of families that are on the financial brink.
• Hume is MD of frozen foods exporter, importer and distributor Hume International.
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