By Paul Matthew, chief executive officer – Association of Meat Importers & Exporters (AMIE)
Time for a trade policy rethink?
We all know that cash-strapped South African consumers are struggling to keep food on the table and meet their monthly obligations as they battle through a weak, low-growth post-Covid economy, and are now facing the additional burden of surging global and local inflation.
Even more frustrating for consumers is that they have no control over any of the factors which are causing inflation, and their expenses continue to rise. The only response available to consumers is to cut their own costs, but for most people in this country, this means reducing the contents of their monthly food basket, or trading down to cheaper sources of nutrition, notably protein.
Recently, NielsenIQ released its monthly ‘State of the Retail Nation’ report. It said that consumers have reached a tipping point in being able to afford basic foods, with many nutrition-based foods being chopped for cheaper products, like bread. The report cautions that 12 of the top 40 grocery products bought on a monthly basis are showing double-digit inflation.
Frozen meat, a key staple and critical in the consumption of protein, saw 22% inflation and a 17% decline in unit sales. This has obvious and dire consequences for the health and welfare of families, especially children. Consumers – who are also voters – legitimately look to their government to provide relief and support. The government has made it clear that it is aware of the extreme economic challenges faced by the public, and while it is also restricted in its own ability to limit the impact of rising global fuel prices and international commodities, it has initiated a number of interventions to try and mitigate inflation and other costs.
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Notably, this includes absorbing some of the increases in the fuel price, and passing these savings onto consumers and businesses. By way of example, however, I was recently reminded that there is more that can be done by government to assist consumers in a practical way that will offer much needed cost relief, by rejecting – and in some cases, removing – steep additional duties on imported goods.
Duties on imported goods are essentially another tax that consumers have to bear. Moreover, when they are applied, importers stop selling their products here, which narrows price competitiveness, leading to price increases on products, especially where local supply cannot meet local demand.
In August, we heard that local tyre manufacturers have applied to government to impose additional duties on passenger, taxi, bus and truck vehicle tyres imported from China. The Tyre Importers Association of South Africa (TIASA) warned that the imposition of duties is expected to have a material impact on the price of tyres, not only for passenger vehicles, which are expected to increase between 38 and 40%, but also for trucks and buses, which will see a 17% increase, and for the vast network of taxis that transport citizens across the country daily; the cost of taxi tyres is set to increase by an alarming 41%.
While the increased cost of tyres will hit consumers directly, they will also be felt in the increased cost of transport, which will feed into general inflation. According to the Road Freight Association, more than 80% of medicines, food, goods and fuel are transported by road today. The application to impose additional duties was brought to government by the four local tyre manufacturers, which bizarrely, import 80% of the 3200 different tyres they sell themselves. They import because they aren’t able to meet the demand domestically.
The simple fact is that if you stop imports of essential goods and foods, you strangle supply and competition simultaneously, which drives up prices, impacting consumers negatively. Duty applications are investigated by ITAC, which is the government agency responsible for duties and tariffs, but the ultimate decision lies with the minister Patel, and the Department of Trade, Industry and Competition.
I think I can safely say that every consumer in this country would like to join in the call to government to reject any additional duties which would adversely impact the price they pay for goods at the checkout.
The liberalisation of trade policies can help consumers. While government’s emphasis on localisation and protectionist policies are understandable, albeit debatable, the timing and extent of these policies need careful consideration. Government needs to remember that in protecting local industry it restricts competition, and what naturally follows is an increase in the price of local goods.
While consumers could bear increases in a strong economic and low inflation environment, they cannot afford to pay the price for localisation in the present climate. Government needs to weigh up the impact of its protectionist policies and understand who requires more urgent relief: a handful of local businesses or millions of cash-strapped South African consumers.
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Indeed, many countries around the world, including Mexico, the Philippines and South Korea are liberalising their trade policies, and have removed tariffs on imported goods to curb and mitigate the impact of rising inflation on their people. The US is currently considering scrapping its tariffs on various goods for exactly the same reason.
While tyres are the latest example of duties and tariffs impacting the consumer, there are many other examples where local industries are being assisted at the expense of the consumer. Poultry is of course one, where government is considering imposing final duties on certain cuts of chicken despite the fact that the domestic producers can’t supply the demand for these cuts.
Likewise, hefty tariffs have been imposed by government on imported frozen fries, despite local farmers not being able to produce sufficient yields of the potato variety required to make chips. Consumers of burgers and chips, kotas and slap-chips are going to feel this sharply in the coming months. You might want to warn your kids that they need to get used to fish fingers without the fries!
The bottom line is that consumers need government to step in and assist in mitigating cost increases wherever possible. Like with tyres, and frozen potato chips, the large local producers of poultry have successfully driven a campaign to get government to impose extreme tariffs on imported poultry, and they continue to seek further duties. This is despite the fact that local manufacturers can’t meet local demand, and that imported poultry helps to introduce competition into the local market and keep prices down.
Consequently, in April this year, when we saw that food prices would become problematic, AMIE asked government to consider removing tariffs on imported poultry products, place a three-year moratorium on new tariffs, and remove VAT from chicken. Since then, we have watched food prices and inflation rocket.
Government is not powerless. It can make a difference to lives of consumers, and it needs to do so with urgency.