Grain SA application for a tariff amendment in the case of wheat
WESSEL LEMMER, SENIOR ECONOMIST: MARKET RESEARCH, GRAIN SA AND NICO HAWKINS, MANAGER: COMMODITY SERVICES, GRAIN SA
Reasons for the application
The existing rate of duty (free) on wheat was amended on 19 December 2008 rendering the industry vulnerable to the current global economic recessionary circumstances. The rate of duty is based on a domestic reference price of 7/ton FOB-value) which does not take the following factors into account:
· South Africa’s response to the current economic crisis. Minister Davies gave notice that a repositioning is necessary to militate against the imbalances that arise as a result of the many bailouts deployed in other countries to salvage distressed industries. An increase of the domestic reference price from 7/ton to a more appropriate level would be more effective in enabling the wheat industry to recover over the long term.
· The depressed wheat world price threatening domestic production where production costs exceeds the price per ton.
· Quality differences in wheat traded on the international market.
· Recommendations of the South African Trade Policy and Strategy Framework, July 2009.
· The current ten year average FOB-price for hard red winter (HRW) no 2 wheat is 9/ton instead of 7/ton as currently applied in the tariff formula.
The existing rate of duty does not provide sufficient protection or encouragement for the wheat industry. The protection of the wheat industry should be based on trends which take into account the factors listed above. The continued existence and growth of the industry is dependent on a stable trade environment. A profitable producer can afford to retain employees and pay decent wages.
Publication: January 2010