Tuesday, December 7, 2021

Consumers set to benefit scrapping of wheat levy

Experts believe consumers will benefit from the gradual phasing out of the wheat levy because the price at which they will buy bread will be significantly reduced. This is because bakers will no longer be forced to buy wheat flour from local millers only; but will also have a choice to buy from South African millers. This added choice is anticipated to pull down the price that consumer pay for bread. 

It is widely believed that South Africa “dumps” its wheat flour in Botswana’s market, which means that it sells wheat at a price below the cost at which it produces it, of which it’s a price lower than what it charges in its own market.  South Africa dumps wheat flour in Botswana because it produces too much, which also explain why it can sell at below cost.   

Bakers have welcomed this new development, especially because they have previously opposed the 15 percent wheat levy, saying it compromised their profit margins. Bakers have also previously complained about the high price of wheat flour supplied by local millers.

Because of the phasing out of the wheat levy, bakers believe that will find relief as they will now be able to buy cheaper wheat flour from South Africa, which will widen their profit gain. 

However, the decision to scrap the wheat levy has greatly disturbed local millers. Chairman of the Maize and Wheat Millers Association Nkosi Mwaba said the consumers’ gain will be short lived as the low price which the consumer will pay for bread will be hiked immediately after local millers have been wiped out of the market.

The local millers have expressed fears that they will be swallowed up by South Africans who are able to produce more wheat flour at a much lower cost.

“Once South Africa takes away the market share from local millers they will have greater flexibility to control prices. With time South Africa will begin to charge exorbitant prices as they will not have competition in the market,” they said. 

The wheat levy is currently at 13.5 percent after stagnating at 15 percent for the past 12 years. But Mwaba still believes the wheat levy will very soon cease to be effective in the protection of local millers from dumping. 

“The wheat levy was effective at 15 percent. If it is diluted, even by 1.5 percent that effectiveness in terms of curtailing dumping is significantly reduced,” he said.

The levy will be reduced by 1.5 percent every year over a period of 10 years.

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