Bolux Group, Namib Mills, Pioneer Foods and Tiger Brands have brought an anti-dumping application on pasta from Egypt, Latvia, Lithuania and Turkey, imported under tariff subheadings 1902.11 and 1902.19, requesting anti-dumping duties as follows:

CountryDumping margin
Egypt43.27%
Latvia68.41%
Lithuania2.45%
Turkey367.25%

The investigation period is from January 2017 to December 2019. Over this period there has been a significant growth in the import volumes of pasta from these 4 countries, as shown below:

Data provided by stratalyze.com

The scope of the anti-dumping investigation

The inclusion of tariff subheading 1902.11 is peculiar, as this tariff codes covers pasta made with eggs, which is imported in small quantities (literally no imports for 2019 from the subject countries, and tiny quantities for the preceding 2 years). Tariff code 1902.11 is where all the action is happening, with imports of R476m in 2019, compared to R9m for the pasta containing eggs. The applicants are not alleging a problem with the imports of egg pasta, but rather are preemptively trying to ensure that this is not used as a loophole if the anti-dumping duties are imposed. It is not clear from the gazette notice if the applicants actually produce egg pasta, but it would appear as if they either don’t, or do so in negligible quantities. Of course if the price of non-egg pasta significantly increases, then there may be a legitimate desire by the consumer to want to rather buy egg pasta, which would now also be covered by the anti-dumping duties, even if this is not required for any reason other than a concern around circumvention.

When you extend a duty beyond the scope of what it should cover, then we move into the realms of possibly needing to create rebates of duty for people who want to import egg pasta, which is genuinely that product, rather than non-egg pasta being deliberately misdeclared. This adds unnecessary costs to a sector which should be untouched by the anti-dumping duties.

Wheat and its place in the pasta value chain

This growth in imports only tells half the story though. The bulk of the value of pasta is contained in the ingredient of wheat flour, which is the only raw material of any significant value. This means that the competitiveness of local pasta, compared to its imported equivalent, is largely driven by the price paid for the wheat. You roughly need 2kg of wheat to produce 1kg of flour and around 90% or more of the cost of pasta is the cost of flour (the other 2 ingredients being salt and water).

South Africa only produces around half the wheat it consumes, yet (currently) there is a duty of 83.21c per kg on wheat, which in July 2020, was being imported at R3.48 per kg (an effective 24% duty). South Africa is part of the Southern African Customs Union, along with Botswana, eSwatini, Lesotho and Namibia, which normally means that we share a common tariff. This is not the case for wheat however, where the other 4 countries in the Customs Union benefit from a full rebate of the duty on wheat, which means every time the duties on wheat increase, the other SACU countries have an immediate competitive benefit. Given that none of the other 4 SACU countries have rolling wheat fields, the wheat they consume will all be imported, either from South Africa or from elsewhere in the world. SA certainly does export to these fellow SACU members, but at prices which are nearly 50% more expensive than what we import from countries such as Germany or Russia (our largest suppliers). Given the commodity nature of wheat, this also means our fellow SACU countries would be importing from the countries which give them the best price advantage. Nambia, for instance, in 2019, imported 52% of its wheat from Russia and only 10% from South Africa. Given South Africa’s perpetual shortage of wheat, this makes perfect sense.

Now this rebate cannot be used to bypass the duties on wheat by importing the wheat into, say, Botswana, and then sending it into South Africa, or even just converting it to flour and sending the flour into SA. However, if you convert the wheat into flour and then the flour into pasta, you are allowed to send your pasta into SA, without it attracting any duty. Given there is currently a 40% duty on pasta, this is a significant advantage into the biggest market in the region.

Data provided by stratalyze.com

This no doubt explains why Namibia’s market share of South African imports of pasta has grown from 11% to 17% over the same 3 years that the anti-dumping investigation covers (R57m in 2017, to R93m in 2019). In fact, the volume of pasta imports from Namibia exceeds the volumes from either Egypt or Turkey, as is shown in the adjacent chart.

This is not a comment on whether there is or is not dumping, but rather to say that this is complicated and fate of the pasta industry cannot easily be disentangled from that of the wheat industry.

The deadline to respond to the anti-dumping investigation is 19 October 2020.

Want to know more about this case or generally more about the wheat and pasta markets? Contact us on info@xa.co.za.

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