Tariff decision delay could shutter SA’s R2.5bn roasted groundnut industry

Roasted groundnut producers have abandoned their application for tariff protection against imports after waiting five years for a response from government that didn’t come.

The investigation into the tariff application should have taken no more than six months, yet five years later there was still no answer from the International Trade Administration Commission of South Africa (Itac), which manages SA’s tariff regime.

During the intervening years, roughly R392 million in roasted groundnuts were imported. Now it appears the roasted groundnut industry is to follow long steel production to the tariff graveyard.

“The cost of not taking decisions is severe, as demonstrated by what happened here,” says Donald MacKay, CEO of XA Global Trade Advisors.

“Proper attention needs to be given to clearing the backlog of tariff applications which have simply not been adjudicated for years.”

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Whether the roasted groundnut industry is worthy of tariff protection is not the issue, he adds. This bureaucratic inaction is likely to lead to job losses and a R2.5 billion a year hit to the economy.

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Job losses ‘a direct result’

“Given that the various agreements had been secured prior to the application being filed with Itac, why did it take 50 months to take a decision? We don’t know, and likely will never know, and that is not acceptable,” says MacKay.

“We watch in horror as thousands potentially lose their jobs at ArcelorMittal’s Newcastle operation due in large part of bad policies, yet here goes another industry with barely a whisper.

“The jobs lost here are a direct result of an inability to take a tariff decision.”

The roasted groundnut industry may not be critical to the future of the country, but it demonstrates what can happen when bad policy combines with structural fissures elsewhere in the economy, such as the rapidly escalating price of electricity.

The cost of electricity in SA has increased 16-fold since 2000, against a fourfold increase in consumer inflation.

Roasted nut competitors in Brazil, India and Argentina faced electricity tariff increases of between 160% and 422% over the same period, with Argentinians enjoying heavily subsidised electricity.

Roasted groundnut producers complained in 2020 of low-cost imports from Argentina, Brazil, and India.

For every 850kg of groundnuts imported, Southern Africa Customs Union (Sacu) farmers lose a ton of production.

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Sacu suffers a perpetual shortfall in peanut supply, making up the 30% deficit with imports, but the tariff setup is a mess: raw nuts face a 10% duty (R2.20/kg at R22/kg), while roasted nuts enjoy virtual free passage into the region with a near-zero 0.99c/kg (0.45%) tariff.

This tariff gap between raw and roasted nuts means it is 13.5% pricier to produce roasted nuts, not counting further losses due to moisture and rejects.

The application by roasted nut producer Steinweg asked for a 21.4% tariff increase to level the playing field. Back in 2019, the SA Groundnut Forum threw its weight behind an 18-20% duty hike to shield the roasting industry.

A perverse consequence of imposing a 10% duty on raw nuts is that the roasted nut producers pay more for their stock because of the tariff applied to raw nuts.

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Application withdrawn

According to a statement by Itac, the producers withdrew their application for a tariff increase because of “a range of operational and other factors, including but not limited to the prolonged uncertainty surrounding the decision on the amendment of the customs duty”.

“The applicant alleges that such uncertainty has affected the viability of their business model.”

At the time of applying for the application, Steinweg said it had already started retrenching staff, but expected to increase employment by 45% in the event that the tariff application was granted, with a similar increase in production volumes.

This article was republished from Moneyweb. Read the original here.