The government needs to urgently review the impact of import duties on the increasing cost of food, and remove newly imposed duties on imported french fries, according to international trade consultancy XA Global Trade Advisors.
This follows the recent imposition by the International Trade Administration Commission (Itac) of provisional duties on frozen fries imported or originating from Belgium, Germany and the Netherlands. The provisional duties imposed were as high as 190% in some cases.
XA Global Trade Advisors CEO Donald MacKay said yesterday the government could not continue to impose duty-upon-duty on food and expect it not to harm consumers.
“Duties on fries specifically have increased the price of fries by 88%, from R16/kg in 2021 to R30/kg in 2022. Duties are not in the public interest, they are just another form of tax and have the concerning consequence of increasing the cost of food in an already tightly squeezed consumer market. The time has come to take a hard look at our trade policy and to weigh up its impact on the rising cost of living,” MacKay said.
According to MacKay, Itac imposed the provisional duties on fries to protect domestic suppliers, based on its assumption that imported fries are causing harm to local manufacturers.
But MacKay said that Itac’s Essential Facts letter, published on October 24, was littered with errors, miscalculations and flawed product comparisons.
“Most concerningly, it is clear Itac is applying duties without taking into account the actual state of the sector, its challenges or the impact that duties have on consumers. Nor has Itac taken into account evidence submitted by numerous importers and trade partners.”
For example, “Itac has not considered two fundamental facts: the first that there is a shortage of domestic potatoes used to make fries, and second, that there is not enough fries processing capacity in South Africa to meet local demand,” MacKay said.
George Southey, the general manager of Merlog Foods, said out of all potatoes grown in South Africa, 88% were processed for consumption and 12% for seed.
He said of the 88%, only 20% were used to make french fries and crisps. He said McCain owned more than 75% of the market for french fries, thus controlling the bulk share of the fries processing sector and the potatoes used to make fries.
“The result of a general shortage of SA potatoes used for fries, and a constrained processing capacity, compounded by the fact that the largest manufacturer uses in the region of 75% of all potatoes in this category, means that everyone else has to import fries to meet the growing demand,” Southey said.
He said the removal of the duties on fries would help to ease the burden on consumers and the impact that food inflation was having on them.
According to Merlog Foods, the consumption of french fries has increased significantly in the past decade, becoming an important part of the South African diet.
“Fries imports, at less than 15% of total consumption, supplement local supply and importantly provide the competition required to keep prices in an appropriate range for consumers. If we remove the competition, we allow the three domestic producers to control and raise the price of food, which is never good for consumers,” Southey said.
MacKay also believed that the imposition of final duties by Itac would help the largest manufacturer consolidate its dominance in the South African market.
“Market dominance is in nobody’s interest. This only serves to create the conditions to increase the price that consumers pay for fries. We have already seen a steady increase in prices, not only from importers, who have to bear the additional duties, but by local manufacturers themselves, who increased prices by 10% in May this year, and another 9% in September.”