International trade consultant XA Global Trade Advisors has called on government to conduct an urgent review of the impact of import duties on the increasing cost of food and to remove newly imposed duties on imported french fries.

This call comes on the back of the International Trade Administration Commission’s (Itac’s) recent imposition of provisional duties on frozen fries imported or originating from Belgium, Germany and the Netherlands.

XA Global Trade Advisors CEO Donald MacKay, speaking during a media briefing on November 2, said this was self-initiated by Itac, rather than being in response to local industry calling for it.

The provisional duties imposed are as high as 190% for some countries.

“We cannot continue to impose duty upon duty on food and expect it not to harm consumers. The duties on fries specifically have increased the price of fries by 88%, from R16/kg in 2021 to R30/kg in 2022.

“Duties are not in the public interest. They are just another form of tax that consumers have to bear and have the concerning consequence of increasing the cost of food in an already tightly squeezed consumer market.  The time has come to take a hard look at our trade policy and to weigh up its impact on the rising cost of living,” he emphasised.

According to MacKay, Itac imposed the provisional duties on fries as a way to protect domestic suppliers, based on its assumption that imported fries are causing harm to local manufacturers.

However, he said Itac’s Essential Facts letter, published on October 24, is littered with “errors, miscalculations and flawed product comparisons”.

“Most concerningly, it is clear that Itac is applying duties without taking into account the actual state of the sector, its challenges or the impact that duties have on consumers.  Nor has Itac seen fit to take into account evidence submitted by numerous importers and trade partners.

“For example, Itac has not considered two fundamental facts – the first being that there is a shortage of domestic potatoes used to make fries, and second, that there is not enough fries processing capacity in South Africa to meet local demand,” explained MacKay.

Merlog Foods GM George Southey explained that out of all potatoes grown in South Africa, 88% are processed for consumption, and 12% for seed. Of the 88% for consumption, only 20% are used for the production of french fries and crisps.

The largest South African manufacturer owns more than 75% of the market for french fries and thus controls the bulk share of the fries processing sector and the potatoes used to make fries.

The rest is made up by two other producers, however, Southey said that owing to the shortage of potatoes used to make french fries in the country, these have had to supplement their production with imports. Therefore, he said, when imported numbers are removed from the equation, the biggest producer controls an even larger share of the market.

“The result of a general shortage of South Africa potatoes used for fries, and a constrained processing capacity, compounded by the fact that the largest manufacturer uses in the region of 75% of all potatoes in this category means that everyone else has to import fries in order to meet the growing demand for fries in the South African market,” explained Southey.

MacKay believes the imposition of final duties by Itac will help the largest manufacturer consolidate its dominance in the country’s market.

He warned that reducing competition in this way would only serve to drive up prices.

“We have already seen a steady increase in prices, not only from importers, who have to bear the additional duties, but by local manufacturers themselves, who increased prices by 10% in May this year, and another 9% in September. What naturally follows the imposition of duties on imports is that local manufacturers increase their own prices to meet the import price,” he noted.

Mackay elaborated that the consequence of additional tariffs or duties is that they push up the price of food, making it more difficult for South African consumers to afford.

This was indicated to have been confirmed in the recent South African Reserve Bank Monetary Policy Review report and its October Monetary Policy Review, which cautioned that duties drive up the price of food, hurting consumers.

Also, potatoes and fries are both exempt from value-added tax (VAT).

McKay said fries have become an important part of South African diets, making up a large share of food servings sold by restaurants and takeaway outlets, especially in the kotas and Gatsbys sold by quick-service food outlets in townships.

“This begs the question: why is government imposing duties on VAT-exempt products which it knows will result in price increases? This kind of misalignment in government policy reinforces the need for a comprehensive review of our trade policy, especially at a time when consumers are buckling under the strain of a hyper-inflation cycle,” he emphasised.

MacKay also referenced Minister Ebrahim Patel's decisions in September to suspend the imposition of additional duties on imported chicken from five countries as a way to help cash strapped South Africans weather inflation.

He said the same should apply to imported fries. The investigation should be halted and provisional duties withdrawn pending a comprehensive review of the impact of overall duties on the price of food.