Barely a month after the first duty increase on wheat and wheaten flour this year, a second increase has been effected from Friday, 14 June 2019. Below is a table showing the latest increase.
|Tariff subheading||Description||Previous duty||New duty|
|1101.00.10||Brown 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)||101,26c/kg||143,69c/kg|
|1101.00.20||Cake wheat flour as defined in Additional Note 1(a) to Chapter 11||101,26c/kg||143,69c/k|
|1101.00.30||White bread wheat flour as defined in Additional Note 1(a) to|
How is the duty calculated?
Unlike most products, the duty is not calculated as a percentage of the value of the import (known as ad valorem duties). The duty is calculated using a Dollar Based Reference Price (DBRP) formula. The DBRP sets an artificial floor price on imported wheat. The duty is triggered when the 3 week moving average price calculated on a weekly basis shows a difference of more than US$10 for 3 consecutive weeks.
Using the latest duty as an example, the DBRP price is currently set at $279 per ton of wheat, which is the level that is deemed breakeven for local farmers. If importers bring wheat into South Africa below this floor price, say at $202 per ton, then a duty of $77 per ton is levied to bring the imported price up to a level where the domestic industry can compete. The $77 per ton duty is then converted to local currency with the prevailing exchange rate (R14.25) on the day when the duty was triggered, yielding a duty of R1 097.56. To take into account currency fluctuations the duty is adjusted for using the Real Effective Exchange Rate (REAR). In this case an adjustment was made using 0.8728 (0.8728*R1 097.56). The final duty implemented is therefore R957.95 per ton.
Special Wheat import arrangements
In terms of South Africa’s Minimum Market Access commitments agreed to at the World Trade Organisation, 108 279 tons of wheat can be imported into the country at 14.4% ad valorem. In simple terms this means whatever, the duty in place, if a company is granted an import permit under this arrangement, it pays an ad valorem duty of 14.4% of the value of the wheat, which may or may not be lower than the Dollar-based duty. South African companies can apply for these permits.
Botswana, Lesotho, Namibia and eSwatini (BLNE) have a special rebate provision which allows companies in these countries to import wheat duty free, up to a certain volume and under certain conditions. For one to import under the rebate provision a permit has to be granted. An important condition attached to the rebate is that wheat and wheaten flour cleared in terms of the rebate item into the BLNS countries shall not be removed from these countries. This condition is meant to protect South African wheat producers from imported wheat flowing through the BLNS countries into South Africa. Nevertheless, the rebate potentially provides manufacturers located in the BLNS countries with a pricing advantage over South African producers of certain products using wheat as a raw material. We see this being used to good effect by Namibia who imports the wheat under rebate and then sells their pasta into South Africa at prices which are difficult to compete with for pasta manufacturers who use imported wheat. Given the perpetual supply shortage of wheat, you can see how this duty becomes baked into the cost of the wheat really quickly.