The decision by government to gradually phase out the wheat levy following 12 years of its existence is a subject at the core of the local milling industry’s outcry. Set at 15 percent in 2003, government in February this year set in motion a mechanism to steadily decrease the levy by 1.5% over a period of 10 years. The levy is currently pegged at 13.5 percent and is a contentious subject which has resulted in disputes between millers and bakers.
Nkosi Mwaba, Chairman of the maize and wheat millers association, told the Sunday Standard in an interview that there is big picture thinking behind the removal of the levy and it goes beyond bakers and millers. “We have matured past the stage of fighting; the question now is what is the likely impact if the levy ceases to exist?” According to information passed to this publication, in June 2013, the maize and wheat millers association in partnership with the bakers association submitted a letter to the then Minister of Trade of Trade and Industry, Dorcus Makgato which recommended to government, as a joint agreement, to retain the 15 percent wheat levy so as to protect the milling industry from dumping. The information stipulates that the joint agreement was reached following a meeting in which the two parties sought to find common ground and, as such, establish a working relationship that would result in mutual benefit.
According to the World Trade Organization (WTO), dumping refers to country or company exporting a product at a price lower than the price it normally charges in its own home market. It does not however impose a judgement on such an activity. WTO therefore focuses on how governments can or cannot react to dumping which means that it is the will of any particular government to decide what action it takes against dumping. In other words, dumping is legal under WTO except if a government can prove that it is harmful to the competing domestic industry or threatens to cause negative effects. The concern with dumping is that in most cases, it renders local manufacturing industries irrelevant as it takes them out of business. The local milling argues that South Africa dumps its wheat flour to Botswana.
Mwaba asserts that the local milling industry will never stand a chance of survival production in the South African industry exceeds that of Botswana. “It’s not a fair and levelled playing field, the best we can do as millers is to adjust our business models in line with what the legislative environment is. We will be reduced to being traders which means that we will also import. As a distributor, you do not have the same economic impact as you do when you are a manufacturer. But is that what the country wants? Is that growth? We may still grow as distributors but growing in the opposite direction to the needs of the economy,” Mwaba fervently expressed. He lamented that the milling industry will no longer impact the economy meaningfully and cited examples that local jobs will be gobbled up due to loss of production, the bulk of the feed which the industry provides to the BMC and feedlots will be significantly hampered and more so, the import bill will rise due to lack of production.
Responding to the question on whether the milling industry attempted to address the threats that it faced against South Africa during the time of protection from dumping, Mwaba highlighted that they could not change because the domestic industry is smaller and vulnerable in terms of both market size and production capacity compared to South Africa.
Mwaba disclosed that the association submitted a position paper to the Minister of Trade and Industry, Vincent Seretse on the impact of wheat flour dumping to the economy of Botswana to which they are awaiting feedback. Given that the wheat levy will be scrapped off, he suggested government to consider counter dumping with alternative instruments such as import restrictions and quotas so as to protect and support the domestic industry.
Reached for comment with regard to milling industry’s claim of unfair competition from South Africa, the Competition Authority said they support the scrapping of the levy as it distorts the market. The Authority would not be drawn to an extensive discussion as consultation is ongoing.