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Poor foot the bill for tariff protection neva

11 May 2017

Next time you buy food, you will also be paying for extraordinarily high tariffs on staples – notably wheat, sugar and chicken. Specifically, you're contributing to tariffs of between 25% and 30% on wheat and sugar, and – depending on the type and origin – up to 30% on chicken. Those tariffs effectively divert your hard-earned rands to sustain a relatively small number of commercial farmers and agricultural trading companies.

In part because of these tariffs, prices for wheat and sugar have risen markedly faster than overall inflation for the past 15 years or so. For chicken, trade measures have been less effective in keeping out imports, so the price has not increased above the CPI. Of course, the latest tariff increases are supposed to change that.

If you're reading Business Day, you probably aren't too fussed about the cost of basic foods. But half of households live on less than R3500 a month, and the added cost is a real burden.

Why, in a democracy, is the state so considerate to commercial farmers? These are not stalwart yeoman tilling the soil themselves. Virtually all are businesses with millions in assets. The government has long criticised their business model, from land ownership and water use to employment standards and the lack of black investors. Nonetheless, it gives them strong tariff protection without a visible quid pro quo.

The answer lies partly in the structure of SA's agro industry. Commercial farmers are organised around crop associations and trading agencies that emerged from the former white farmers' co-ops. These organisations lobby government agencies and shape market information.
There are 30 000 commercial farmers, with around 3400 in wheat and, in sugar, 1500 large estates that account for 90% of production. In poultry, just two companies generate around half of total sales. Around a fifth of commercial farmers are now African.

In theory, the number of commercial farmers should ensure competitive prices – that is, prices equal to the cost of production plus a normal rate of profit. But crop associations act as powerful lobbies with the national Department of Agriculture as well as at the tariff-setting authorities. When margins fall, they spring into action on behalf of their members, sending alarms that typically threaten job losses if government doesn’t bail them out.
For wheat, maize and soya, the problem is aggravated by the dominance of a few trading companies. Senwes, Afgri and NWK control most silos, giving them considerable influence over prices. Case studies suggest high mark-ups along the way, which translate into higher prices for mealie meal and chicken.

It doesn't help that the official source of information on grain prices, SAGIS, only reflects international prices and transport costs. It doesn't provide buyers with comparable information on the local cost of production per tonne. As the exchange rate has fallen since the end of the commodity boom in 2011, the result has been a steady increase in the rand price of wheat, maize and soya. That’s a key cost driver for poultry - and helped activate the poultry lobby to demand tariffs.

Trade protection for commercial farmers has not translated into substantially higher pay or improved housing for their workers. In 2015, the median income for farmworkers came to R2400 a month. Of households in commercial farming areas, 45% did not have running water, a similar share had only pit toilets, and over a quarter did not have electricity.

The fact that the democratic state has enacted tariffs to protect perhaps 10 000 farm owners at the cost of millions of working-class voters remains an oddity. In part, it results from the technicality of tariff debates, which obscures the implications of decisions for consumers.  In part, it arises because tariffs in other sectors enjoy considerable legitimacy, for instance to save steel production in the face of the global glut.

But it also reflects the fact that until recently, the ANC could count on its constituency, no matter when it did. In these circumstances, it has not faced great pressure to reform food systems to reduce the cost of living for urban workers, who at three quarters of the population make up by far the largest group of voters.

Ultimately, after more than two decades of democracy, the oppressive trajectory of SA agriculture has changed very little, despite improved representivity at the top. It continues to provide high incomes for a relatively small number of farm owners, while ordinary citizens confront rising prices for staples. And most farmworkers and residents of the former so-called "homeland" areas still live in deep poverty.

From this standpoint, debates about cutting the cost of land are a red herring. Existing laws and the Constitution both make it possible to acquire land affordably.
The real challenge is to re-structure the production system, from land ownership through to marketing, both to expand opportunities for small producers and to maintain low-cost food supplies for the cities and towns. The dti could start by identifying ways to reduce prices on staple foods, so that millions of working people no longer pay extra to maintain a few thousand farm owners in relative luxury.