The issue of rising food prices has been at the core of the policy discourse for some time, particularly over the past year when the country experienced a perfect storm of a severe drought, and a volatile plus depreciating Rand. South Africa became a net importer of staple grains – such as maize and wheat – and we imported almost a third of our annual maize consumption and half of our wheat. The high level of staple grain imports exposed the market to the exchange rate shocks, which re-enforced the impact of rising food prices.
As food security is an issue of national interest, all citizens are naturally inclined to understand the fundamental drivers of the significant price increases we have witnessed thus far. But in our desire to understand the subject matter, it remains important to appreciate the complexity of food markets, particularly as it relates to price discovery and tariff formulation.
In that spirit, we want to address the fundamental flaws of Neva Makgetla’s argument contained in an article published in the Business Day of the 9th May 2017. In her view, Neva accuses government, farmers, farmer and trader organisations, and private companies’ of being complicit in authoring and sustaining food price increases – through price collusion and the setting of exorbitant import tariffs.
This, of course, is a serious allegation. If that were the case, or if Neva had evidence that large grain traders are having considerable influence on prices, surely the Competition Commission would have observed these tendencies and launched an investigation. Since that has not happened, Neva’s assertions are unsubstantiated claims.
With regards to tariffs, it is important to note that this is a matter of global significance, and South Africa is not the only country that has used tariffs to ensure sustainability of domestic production.
Neva’s arguments demonstrates a clear lack of appreciation of the tariff formulation process itself. Government does not wake up and decide to implement a particular tariff level. There is an intensive, evidence-based, and transparent public consultation process that is conducted by the International Trade and Administration Commission (ITAC) – which ensures that all views of the role players in the food value chain are captured in the tariff decision.
Such processes and decisions can take months, or even years, to complete, and all decisions are carefully crafted to ensure a balanced outcome of consumer and producer welfare. Moreover, decisions related to trade instruments such as tariffs are subject to compliance with World Trade Organisation (WTO) rules, and anyone who is familiar with the process will know that ITAC does not just give favourable decisions to commercial farmers. There are many reviews in the past in which tariff investigations have either led to lower-than-requested tariffs, or worse, tariff applications being rejected outright.
For Neva to now suggest that these tariffs are put in place to favour farmers at the expense of the poor is not only a blatant disregard of the enormous and complex work that is done by ITAC, but also an attack on the integrity of state institutions that are playing a vital social function.
Neva furthers her conspiracy theory by questioning the integrity of agricultural markets in price discovery, and indirectly alleging that the South African Grain Information Service is deliberately and selectively concealing domestic price information with the sole intent of covering up the grain price increases.
If Neva had cared to check the SAGIS website, Grain South Africa, and the primary source – the Johannesburg Stock Exchange, she would have known before she penned her allegations in a national newspaper that this statement is incorrect. With all price information publicly available, it is irresponsible of Neva to make innuendos that play into the fears of the public, using incorrect statements.
Neva also makes an inaccurate statement when she says tariffs are sustaining trading companies. Tariffs add no value to the business of traders, as these tariffs (taxes) are collected by government, and not by traders.
Generally, Neva’s reductionist views on tariffs and food markets show that she has no comprehension of commercial agriculture in general, and the global trading system in particular. For her to suggest that South Africa should give up its right to protect its own productive capacity and food self-sufficiency is absurd. Without tariffs, the wheat, chicken and sugar industries will collapse, not because we cannot competitively produce, but because there is so much distortion in the global market – everyone else is protecting their own and there is no reason why South Africa shouldn’t. Neva, of course, conveniently omits this part of the argument.
Given the nature of global agriculture and food markets, the conversation about tariffs should not consider food prices in isolation, but rather, it should take into account the number of jobs and productive capacity lost if we do not have a balanced tariff decision.
*This article was published in the Huffington Post on the 10th May 2017 by Wandile Sihlobo and I.