Wednesday, October 20, 2021

Local wheat millers struggle for economic survival

The fight against the obliteration of the wheat levy by Botswana Millers Association appears to be advancing in its argument but doing so however at the face of a seemingly unbending government decision.

The wheat and maize milling industry had previously been protected by a 15 percent wheat levy, a shield that the millers enjoyed for 12 years before government introduced its gradual phase out. Government allowed that the levy will be reduced by 1.5 percent every year over a period of 10 years. The levy is currently sitting at 10.5 percent. Prior to its tinkering the levy acted as a form of restriction to the local millers’ biggest competitor being South Africa such that it sold its wheat in limited quantities to the local market.

Following the first reduction from 15 percent in 2015 the Association responded by advancing that the move incentivised South Africa to ‘dump’ its wheat into the local market. Dumping in this sense means that South Africa sells its wheat at a price below the cost at which it produces it, which is also a price lower than what it charges its own market. This is because South Africa produces in quantities that exceed its domestic demand and as such allows it to sell the excess outside its market. The Association’s fear in the removal of the levy stemmed from their belief that against their giant competitor local millers don’t stand a chance of survival given South Africa’s favorable below cost production scale. It has been two years since the Association submitted its reasoning but it would appear that the counterargument has not moved government’s stance. At the current 10.5 percent it means that the following year the levy will be almost halved, which suggests that its effectiveness will have been diluted by about half its initial figure. It seemed at its introduction that bakers were the only industry players that welcomed the development on the grounds that the levy had compromised their profit margins.  Bakers had 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.

Perhaps seeing that the first argument of ‘dumping’ and possible erasure of local wheat and maize millers is failing to fetch the desired results the Association is now pulling the weight of local farmers into the mix. In the latest statement the Association released the Chairman of Botswana Millers Association Nkosi Mwaba submitted the rationale that local millers will play a “pro-active role in the development and commercialisation of grain farming in Botswana.” According to Mwaba local millers consume 120 000 tons of white maize every year but access less than 10 000 tons of maize crop from local farmers, this constitutes 8 percent of the annual consumption. It is estimated that Botswana millers import up to 90 percent of its grain from South Africa thereby indicating the heavy reliance that the local milling industry has in meeting its grain needs. At about 10 000 tons sourced from local farmers it equates to P40 million spent on local harvest while over P450 million is spent on farmers in SA and other global suppliers such as the US, Mexico, Argentina and Brazil. The Association therefore argues that “if Botswana was self- sufficient in maize farming, we would not need to buy a single grain or tonne of maize from outside our borders.  We are a critical part of the value chain and recognise the fact that we are the end market for farmers.” The Association views the commercialising of crop production as a move that can make South Africa irrelevant to the local milling industry and hence give the industry an opportunity to contribute to food security and the economy at large.

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