Sugar and wheat are essential commodities used in the manufacturing of many basic food stuffs. In its last investigation covering duties on sugar and wheat, ITAC found that although sugar prices have generally fluctuated in the last few years, the impact on food inflation on consumer products is small or negligible.  Although that may be the case, the direct impact on businesses importing these commodities maybe significant.

Increased duties on sugar

There has been no duty on imported sugar since 28 July 2017. However, this has changed today (15 September). Imported sugar will now attract a duty of 213.1c/kg. This effectively removes the temporary reprieve enjoyed by sugar importers in the last few weeks.

What has caused the new duties?

The import duties on sugar and wheat are calculated using a Dollar Based Reference Price (DBRP). The reference price sets an artificial floor price on imported sugar. Currently, the reference price on sugar is $566 per ton. If importers bring sugar into South Africa below this floor price of $566 per ton, a duty is triggered to protect local producers.

It is important to note that the duty does not change on a daily basis, however for the duty in place to be revised up or down, the imported sugar would have been below the floor price for 20 consecutive trading days. In the case of sugar a duty has been triggered because prices have dropped on the world market. Should world prices increase and imports enter the SACU market at below $566 per ton (for 20 consecutive trading days), the duty might be revised downwards. However, this is entirely dependent on sugar prices on the world market.

Reduced duty on wheat 

On 8 September the import duties on wheat declined as follows:

Tariff codeDescriptionNew dutyOld duty
1001.91Seed37.93c/kg94.72c/kg
1001.99Other37.93c/kg94.72c/kg
1101.00.10Brown wheaten meal produced by the milling of whole grains (the
bran, germ and endosperm) (excluding separated wheat bran,
separated wheat germ or separated wheat semolina or endosperm)
56.9c/kg142.18c/kg
1101.00.90Other56.9c/kg142.18c/kg

Likely upsetting for local wheat producers

Wheat appears to be a touchy subject between policy makers and local producers and has been at the center of some Court room battles. In 2016 Grain SA took National Treasury to court twice after Treasury refused to impose the high duties that had been triggered on the commodity. The duty had risen from R1 224.31 per ton to R1 591.40 per ton. This raised alarm and concerns on impact of the duties on basic food products like bread. You can read more about this here.

Following the drama, the Minister of Economic Development issued a directive to ITAC to investigate the manner in which duties on wheat, sugar and maize are calculated. The investigation had two objectives: to determine whether the method of calculation (the DBRP formula) was still relevant and; to determine whether the reference prices for the commodities and duties in place were necessary. The findings were published in June.

This latest round of reduction in wheat duties is likely an unwelcome development for local producers but certainly a welcome development for wheat users. Certainly, local wheat producers need to be protected, however, the level of protection needs to be fair and reasonable.  It remains to be seen whether the revised DBRP formula will trigger the higher than usual duties of yesteryear.

Duties triggered by the DBRP cause uncertainty if not tracked properly with a view to determining when a next duty change may happen. Importers are often caught unawares and suddenly find themselves sitting with large duty liabilities

Do you need a model to assist in tracking the sugar and wheat duties? Contact us on info@xa.co.za

 

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