Wheat is, alongside maze, one of the most important field crops in South Africa. The role of the wheat industry plays an important part in the South African society because it is the second most important food source, as well as essential for the South African’s cuisine, which is primarily based on wheat products.
To ensure sustainable food security, South Africa produces the majority of nation’s wheat and ensures that the country is provided with bread, a product consumed across the nation. Bread is a staple food in this region. Therefore, South Africa needs to produce suitable amounts of wheat every year continuously.
It seemed that South Africa was doing great in the wheat-production department, as there was an increase of production and export of wheat and decrease of import from 1997-onwards. Nonetheless, the problem in the South African wheat production arose several years ago, in 2016 and 2017, when the country became incapable of producing enough wheat independently and had to rely on wheat import. The international wheat and grain market saw an opportunity in this situation as the South African wheat import tariff has lowered in the past two years.
According to the recent statistics, provided by the International Trade Administration Commission of South Africa (ITAC) and the Food and Agriculture Organisation, South African wheat industry is under severe pressure the last few years. Due to extreme weather changes and drought, the wheat planting has decreased, and the import of wheat and wheat products has been on the increase since 2009. The lack of food and wheat production has affected the job opportunities in the wheat farming industry in South Africa, as well as raised awareness and concerns regarding the wheat production sector and excessive wheat import which is increasing annually.
Agriculture in South Africa
To understand the notion of wheat import in South Africa, as well as import tariffs and import how-tos, we need to take a look at the South African agriculture itself.
During the second part of 20th century, there were some fluctuations in the agriculture and economic contribution of this industry to the overall GDP and country’s economic development. The percentage of agriculture contribution to country’s GDP has been drastically decreased from 30% in the 1930s to 5% in 1999. Nevertheless, this decrease has not endangered agriculture, even though mining and secondary industries took the primary position in the country’s monetary policy; this industry still managed to remain a vital contributor to South African economy and stability.
During the second decade of 21st century, South African agriculture has started to change even more. The scale of the change was so radical that it ended up affecting employment in the farming as well as production and country’s export business. However, the country managed its way out of the crisis and saw an overall increase of 5.96% in employment rate over the last 30 years.
Since the 1980s, wheat farming in South Africa has been deregulated, and the agriculture industry is on its own when it comes to the free, international market. Farmers are individually responsible for the prices and the quality of the products, as well as future contracts which they seek through the South African Futures Exchange. What is especially interesting when it comes to agriculture development in South Africa is the fact that it is a dual agriculture economy.
There are two significant determinants when it comes to the dual economy aspect of the agriculture industry. The first determinant is an excellently developed commercial sector, while the second one refers to the substance-oriented agricultural production that is predominant in rural areas of the country. Even so, South African agriculture has managed to achieve double output and a status of a self-sufficient and self-reliable producer and exporter. This has enabled the country to export its products to the more developed countries and create a new position and status on the international market and meet global commodities demand.
So, how is it possible that after so many accomplishments and issues overcome South Africa still managed to fall into the crisis of increasing import and decreasing export? Let’s look into the wheat industry on its own to find out the reasons and causes of this economic turnover.
Wheat Industry in South Africa
Wheat industry in South Africa has been seen as one of the major food suppliers in the country. During the 1970s, South Africa managed to establish an annual wheat production rate never achieved before. The country managed to produce 20% wheat surplus and was expected to increase the number over the following decades. However, towards the end of the century, the production of wheat halved, while the increase in country’s population resulted in doubled wheat consumption. In order to meet annual wheat demand, South Africa ended up importing up to 50% of wheat into the country over the last 30 years. Even with these numbers in mind, the wheat production seems to be stable as it managed to yield sporadic increases in production.
The Bureau for Food and Agricultural Policy’s report on South African wheat production, however, shows the reasons behind country’s inability to meet the full, independent wheat production. The report refers to climate changes and increases in drought or excessive rainfall seasons, quality issues and market competitiveness of South African wheat. Even though tariffs and duties protect the industry, they also leave South African market competitiveness undetermined and questionable. One can also easily see why there is a decline in wheat production in South Africa when observing the high and strict standards of wheat quality and the lack of yield. The wheat quality has been increasing over the years, while the production has been decreasing.
Understanding The Wheat Import Tariffs In South Africa
The average wheat production in South Africa amounts to 1.7 million tons annually. However, annual consumption demand amounts to over 3 million tons. To meet the market demand and the requirements of its population and economy, South Africa needs to rely on wheat import which amounts to 50% every year. Some may find economic potential in this situation because South Africa qualifies as a net importer. Nonetheless, the fact that the country excessively imports wheat for low international wheat prices leaves South Africa uncompetitive on the international market.
This is where we come to the issue of the wheat tariff. South Africa has announced a new wheat import tariff in 2017. The new duty is strikingly 60% lower per ton that it used to be in previous years, and the lowest it has been in the last two years. Subsequently, these numbers imply that the country will have to import additional 2 million tons of wheat in 2018, due to climate conditions causing a decrease in production.
According to ITAC, the Western Cape Province is under a major drought. However, the decrease in wheat import tariff will not affect the domestic wheat price as it was expected. The weather situation remains one of the leading causes for the wheat import tariff decrease, which is probably going to stay dry in the foreseeable future. Consequently, the USDA reports that South Africa will have to import twice as much wheat than expected for 2017-2018. So, let’s take a look at the following questions for a better understanding of the situation;
• What is the purpose of tariffs?
The principle behind tariffs is the protection of industry and market environment. So it is important for South Africa to reach a balance between the much-needed industry protection and the need for market competitiveness. Furthermore, social welfare and the security of the country’s weak strikes as an even more significant issue that needs to be regulated and protected as well. So, what is it that South Africa needs to pay attention to when importing wheat?
In order to make the imported wheat match the domestic requirements for high-quality wheat, South Africa developed standard conditions that have to be fulfilled. The grain quality is crucial when importing, and exporting as well. To import, the wheat grains need to be of particular, designated properties. The need to be of specific physical appearance, hardness, size, shape, and color. So, for any country to export to South Africa, it first needs to pass the standard quality control. Regardless of low international prices, wheat quality is still of central concern for the domestic producers, as well as importers.
• How are they calculated and do tariffs affect domestic wheat and bread prices?
The calculation of tariff is based on a variable formula which ensures the accommodation of market change. The variable formula takes in consideration reference price, distortion factor and the transport cost. The formula, of course, continually fluctuates due to the international wheat prices and the global price changes as well. When calculating, the most critical aspect is local prices or a unique local price that stands as a referential point. This is how the South African wheat import tariff has been calculated and narrowed down to 60% less than it used to be. It is essential to bear in mind that the import tariffs, however, do not affect nor increase the local wheat and bread prices.
• Is there any support for the producers and importers?
The producers and consumers receive revenue from the import tariff. The import tariff ensures revenue for South Africa, and the majority of funds are directed at countries like Botswana, Namibia, Swaziland, and Lesotho. These are the countries that South Africa export wheat to at zero tariff rate. The importers also receive support regarding imports. They are available to import at a discount rate. This is ensured by the Minimum Market Access (MMA) program of WTO. Through the Free Trade Agreement, they are allowed to import from European Union at a zero import tariff as well.
• What would be the result of import tariff removal?
A scenario in which the import tariff is removed would be destructive for South African wheat and agriculture industry. The outcome of such a situation would be a cease in local production in South Africa. Even with some alternatives in mind, the local producers would have limited options. One possible solution would be turning to long-term farming decisions. However, this would also have an adverse effect on employment and social status in these production areas, like the most significant production area which is Western Cape.
Future Predictions Regarding South African Wheat Import
Sub-Saharan Africa, in general, is at continuous food-insecurity. The wheat consumption in this region, excluding South Africa, is below 20 kilos per capita. There is a chance of South Africa becoming the main wheat exporter, therefore, the main wheat importer. What this means is that the country would have to satisfy the demand of its population and the need of the rest of the region and neighboring countries. South Africa, becoming dependant on import in the last two years, may become even more dependent and see an even more significant import tariff decrease. The question is how will such a scenario affect South African economy and market competitiveness, or whether it would be on the map as a wheat exporter at all.
We also need to take in consideration climate change, which already affects the wheat and agriculture industry in South Africa negatively. The future of farming and wheat industry is at this point uncertain unless we see major improvements in climate in the next few decades. Unless the change happens, South Africa could see at least 20% increase in an already high annual wheat consumption.
South Africa has recently started developing ideas for wheat industry revival. The Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA) reports that South Africa is looking into the option of higher yielding cultivars as well as introducing changes when it comes to grading regulations and standards. The country is also considering the implementation of an ‘end-point royalty system to counter farm-saved seed.’ Even so, if there are no groundbreaking technological changes in the foreseeable future, the producers as well as importers will have to turn to more profitable crops options, like oats, canola, soybeans, and corn. Cheaper alternatives will affect the food-consumption and nutrition of this area’s population, according to future predictions provided by FAS experts.
Wheat Breeding Platform to Help The Wheat Supply in South Africa
The Department of Science and Technology in South Africa is looking into launching a national wheat breeding platform in order to meet the staple-grain demand in the country. This initiative is supported by 15-million rand annually as an investment provided by the Department. The South African wheat breeding program is further funded by the Winter Cereal Trust, which is stepping in with 20-million rand. This type of experimental farming is to secure wheat supply in South Africa and neighboring countries, as the country hopes and predicts. The program is to ensure high production, quality, and availability of wheat across the nation and region.
How Can Waystocap Help Wheat Import In South Africa?
As a platform and a system that supports you as an importer, Waystocap can ensure a safe space and market environment if you are interested in wheat import when it comes to South Africa. Since Waystocap is the first African B2B marketplace, you can be sure that you will be provided with direct information and insightful knowledge that we have acquired over years of working in this field.