Next time you buy food, you will also be paying for extraordinarily high tariffs on staples — notably wheat, sugar and chicken.
Specifically, you’re contributing to tariffs of 25%-30% on wheat and sugar, and – depending on the type and origin – up to 30% on chicken. Those tariffs in effect divert your hard-earned rands to sustain a small number of commercial farmers and agricultural trading firms.
In part because of these tariffs, prices for wheat and sugar have risen markedly faster than overall inflation for the past 15 years or so. For chicken, trade measures have been less effective in keeping out imports, so the price has not risen above the consumer price index. Of course, the latest tariff increases are supposed to change that.
If you’re reading Business Day, you probably aren’t too fussed about the cost of basic foods. But half of households live on less than R3,500 a month and the added cost is a real burden. Why, in a democracy is the state so considerate to commercial farmers?
These are not stalwart yeomen tilling the soil themselves. Virtually all are businesses with millions in assets. The government has long criticised their business model, from land ownership and water use to employment standards and the lack of black investors. Nonetheless, it gives them strong tariff protection without a visible quid pro quo.
The answer lies partly in the structure of SA’s agro industry. Commercial farmers are organised around crop associations and trading agencies that emerged from the former white farmers’ co-ops. These organisations lobby government agencies and shape market information. There are 30,000 commercial farmers, with about 3,400 in wheat and, in sugar, 1,500 large estates that account for 90% of production. In poultry, just two companies generate about half of total sales. About a fifth of commercial farmers are now African.
In theory, the number of farmers should ensure competitive prices – that is, prices equal to the cost of production plus a normal rate of profit. But crop associations act as powerful lobbies with the Department of Agriculture and the tariff-setting authorities. When margins fall, they spring into action on behalf of their members, raising alarm on the threat of job losses if the government doesn’t bail them out.
For wheat, maize and soya, the problem is aggravated by the dominance of a few trading companies. Senwes, Afgri and NWK control most silos, giving them considerable influence over prices. Case studies suggest high mark-ups along the way, which translate into higher prices for mealie meal and chicken. It doesn’t help that the South African Grain Information Service only reflects international prices and transport costs. It doesn’t provide buyers with comparable data on the local cost of production per tonne.
As the exchange rate has fallen since the end of the commodity boom in 2011, the result has been a steady rise in the rand price of wheat, maize and soya. That’s a key cost driver for poultry and has helped activate the poultry lobby to demand tariffs.
Trade protection for commercial farmers has not translated into substantially higher pay or improved housing for their workers. In 2015, the median income for workers was R2,400 a month. Of households in commercial farming areas, 45% did not have running water, a similar share had pit toilets and more than a quarter had no power.
The fact that the state has enacted tariffs to protect perhaps 10,000 farm owners at the cost of millions of working-class voters remains an oddity. In part, it results from the technicality of tariff debates, which obscures the implications of decisions for consumers. It also arises because tariffs in other sectors enjoy considerable legitimacy, for instance to save steel production in the face of the global glut.
But it also reflects the fact that until recently, the ANC could count on its constituency, no matter what it did. In these circumstances, it has not faced great pressure to reform food systems to reduce the cost of living for urban workers, who at three-quarters of the population make up the largest group of voters. After more than two decades of democracy, the oppressive trajectory of SA’s agriculture has changed very little.
From this standpoint, debates about cutting the cost of land are a red herring. Existing laws and the Constitution both make it possible to acquire land affordably. The challenge is to restructure the production system, from land ownership through to marketing, to expand opportunities for small producers and to maintain low-cost food supplies for the cities and towns.
The department could start by identifying ways to reduce prices on staple foods.
• Dr Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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