South Africa's Wheat-Import Tariff Increase Could Worsen Inflation

By Staff Writer

Apr 08, 2016 10:27 PM EDT

South Africa could be the sub-Saharan region's largest wheat producer after Ethiopia but is also a net importer of the said grain.  The Finance Ministry has approved on Friday a wheat-import duty increase by 34%, the highest record to protect local farmers but requested the commission to study the formula because higher tariffs has effect on food prices.

In accordance with the International Trade Administration Commission's present formula, the tariff on wheat imports is now 1,224.31 rand ($81) per metric ton. The department suggested to Trade and Industry Minister Rob Davies that he thinks carefully "an urgent and accelerated review" of the formula and be followed by examining its calculations for corn and sugar duties, as reported by Bloomberg.  

Inflation in South Africa rose to 7% in February which is the fastest pace since 2009 which adds to the central bank's policy predicament of rising consumer prices and economic growth slowdown.

Prices of food particularly for the staple maize crops keep on increasing due to severe drought, pushing inflation higher but analysts, but the impact of the tariff hike on consumers will be at minimum analysts say, reports Reuters Africa.

"The reason they are increasing it is because of the fall in global wheat prices and the depreciation of the rand. It levels the domestic price so that prices here do not fall to the levels where it is not sustainable to produce wheat in South Africa."

Africa's most industrialized economy generally have about 60% of the wheat importation it consumes and Grain SA anticipates South Africa will import 2 million tons in the 2015 and 2016 marketing year ending on September 30.

Since 1992, the driest conditions have destroyed crops and livestock soaring local wheat prices to the highest on record, rising up food prices. Disaster areas have been declared by the government in country's several provinces, the continent's biggest corn and sugar grower, according to a report from BD Live.

The new tariff will be applied for the rest of 2016 and the formula will be based on the international wheat price. Wheat in Chicago trade nears the lowest in five and a half years, but for South Africa the futures for the grain swelled to a record in January.

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