Owing to various factors, including drought, high-yielding competitive crops and the absence of pricing mechanisms, the local groundnut industry finds itself at a perilous junction. This is a disheartening situation for those who continue to believe in this commodity and those who make a living in the various branches of this industry.
This has been a reality for some time, and despite many measures put in place during recent months and years, the industry has not yet been able to recover.
New challenges arise
In addition to the existing challenges this specialised industry faces, a new situation developed during the past three years. Insignificant peanut butter imports were first recorded during 2007, but never exceeded 1 000 tons per year up until 2016. This situation drastically changed during 2017, with an increase to 3 000 tons. This fast-growing trend continued in 2018 and 2019 (Figure 1).
Figure 1: Peanut butter trade and prices. (Source: BFAP)
During 2018, members of the South African Groundnut Forum (SAGF) raised concerns over the possible impact of this new development. The Oil and Protein Seeds Development Trust (OPDT) was requested to appoint the Bureau for Food and Agricultural Policy (BFAP) to compile an updated groundnut value chain report. This report aimed to support the industry with the latest unbiased information to better understand the underlying factors in recent changes and to inform decisions. It specifically focused on the trade competitiveness challenges brought on by inconsistent tariff applications.
The report, which was completed in 2019, states: “Local processors are facing an import duty of 10% on imported groundnuts, yet peanut butter and roasted groundnut imports are landed virtually duty free. Peanut butter imports are rapidly increasing and consequently putting pressure on the local processing industry.
“The impact of peanut butter imports is exacerbated by the fact that local groundnut production collapsed from 57 000 tons in the 2017/18 production season, to a mere estimated 18 000 tons during the 2018/19 production season.”
In cases where the competitiveness of an industry is challenged, tariffs may be implemented to protect local producers, processors, jobs and value-add. The raw groundnut seed and kernels (uncooked, whole or broken, shelled or in-shell, including blanched groundnuts) all trade under a tariff of 10%. However, products derived from groundnuts, such as peanut butter and roasted peanuts, trade under a substantially lower estimated ad valorem tariff of only 0,03% and 1%, respectively. This tariff discrepancy creates an imbalance on local pricing and vulnerability brought on by cheaper imports.
BFAP found that is it currently 10% more expensive to produce peanut butter locally than it is to import pre-packed peanut butter, which effectively outcompetes locally produced products. As peanut butter imports increase, the processing demand for locally produced sundry-quality and split grade groundnuts will decrease, which will have an adverse effect on farmer stock prices estimated at between 4 and 8%.
This could relate to a decrease of gross margins for groundnut production of between 13 and 14% as the farmer stock price is derived from a combination of the various quality or grade prices making up the total crop. Should the sundry and split markets change, price stability will increasingly rely on other markets, such as local edible and exports of choice grade.
South African export markets are under pressure due to the instability of supply over recent years. As far as price is concerned, the markets are not keen to keep supporting a premium price if continuous and stable delivery cannot be maintained, even while South Africa remains a key origin of the Spanish-type variety.
In a worst-case scenario where local peanut butter processing can no longer remain feasible, BFAP predicts a loss of R283 million in the peanut butter industry and over 3 000 job losses, which will affect an estimated 12 600 dependants. Since the preparation of groundnuts destined for processing in the larger cities is predominantly done in rural areas, many of the 3 000 jobs that will be lost belong to people who have very few alternative employment options.
According to the BFAP report, the industry discussed the possibility of a tariff adjustment to compensate for the competitive disadvantage that is currently evident in the peanut butter sector. The report suggested a calculated tariff to reach a local production cost of 22% (ad valorem basis) on all peanut butter harmonised system (HS) codes.
Although roasted groundnut imports have not increased in recent years, it was deemed necessary to address the large disparity in tariffs across all groundnuts and derived products HS codes. At this stage it is reportedly 11,39% more expensive to produce roasted groundnuts locally than it is to import it.
The way forward
After presentation of the BFAP report at the last SAGF meeting of 2019 and further industry consultation, a consensus was reached to request the International Trade Administration Commission of South Africa (ITAC) to investigate and consider adjusting the import tariff on all peanut butter tariff codes to 25% and that of roasted groundnuts to 20%.
As a matter of interest, the World Trade Organization (WTO) tariff for both these products is 70%. This tariff represents the negotiated maximum tariff level for all members of the WTO. Since these applications are specialised and technical in nature, it was further decided to appoint trade law specialists to facilitate these applications on behalf of the industry. Partial funding has been obtained from the Oilseeds Advisory Committee and the OPDT, with industry role-players contributing approximately half the cost themselves.
During times in which clear and widely beneficial action and direction are critical for this industry, it is heartening to experience how individual needs and interest can give way to action towards the long-term stability of the total supply chain and benefit of the South African consumer and workforce. The ITAC applications are underway, and it is expected that it will be issued for consideration and investigation soon. The SAGF will continue to update industry and other interested parties on the progress of this critical process.
For more information, send an email to Adri Botha at email@example.com.