The Commission considered an application by Kees Beyers Chocolates CC (the “Applicant” or “Beyers Chocolate”), for the creation of a temporary rebate facility under Schedule 4 of the Customs and Excise Act, No.91 of 1964, for the importation of bulk white chocolate, classifiable under tariff subheading 1704.90 for use in the manufacture of chocolate classifiable under tariff subheadings 1806.31, 1806.32 and 1806.90.
During its deliberations and in arriving at its recommendation, the Commission considered the information at its disposal, including comments received during the investigation period.
The Commission found that:
• The Southern African Customs Union (“SACU”) market for sugar confectionery comprises of major confectionery manufacturers such as Tiger Brands Ltd (Beacon brand), Premier Foods (Manhattan brand), Lodestone Brands (Rascals, Mister Sweet and Candy Tops) and Trade Kings. Information submitted indicated that, for the sugar confectionary sector as a whole, Tiger Brands Ltd had a leading market share followed by Premier Food, Candy Tops and Mister Sweet.
• Information submitted showed that the subject product is currently only being manufactured by Nestlé SA (Pty) Ltd and Tiger Brands Ltd, both vertically integrated entities using domestic sugar as an input product, mostly for their own use in the manufacture of chocolate varieties that they sell.
• Information submitted further indicated that Tiger Brands Ltd competes with the Applicant in the final product market and Nestlé SA (Pty) Ltd does not supply third parties with the product concerned as it uses all the bulk white chocolate that it manufacturers for its own application. The Applicant may therefore experience price undercutting from its suppliers who are, at the same time, its competitors.
• According to the Applicant, it needs to import bulk white chocolate from the EU as a raw material in the production of retail-ready chocolate products at a rate of 25 per cent ad valorem, which makes it challenging to compete even in international markets. Compounding the situation is the fact that the final retail-ready chocolate products, originating from the European Union (“EU”), enter the SACU market duty free as a result of the Economic Partnership Agreement between the EU and its Member States on the one hand, and SACU and Mozambique on the other hand, which came into force on 16 October 2016 (“EPA”).
• Import data obtained from the South African Revenue Service (“SARS”) indicated that imports of chocolate originating from the EU, recorded a 58%, 55% and 60% share of total imports in 2017/18, 2018/19 and 2019/20 financial years, respectively.
• In terms of information supplied in its price cost build up, it was found that the Applicant has experienced negative profit margins until 2019/20, when a marginal profit was realised.
• The Applicant experienced price disadvantages against imported chocolates originating from the EU. Higher levels of price disadvantages were experienced against imports from other economic regions that are relatively lower priced when compared to EU prices.
• The Applicant’s information relating to its employment levels indicated a general upward trend, during the period under investigation.
• In terms of reciprocal commitments, the Applicant committed to increase investment, production and employment during year 1, year 2 and year 3 should the application for the creation of a rebate provision be successful.
• In terms of pricing commitments, the Applicant submitted that prices will increase in year 1 subsequent to which it will reduce and stabilise in years 2 and 3.
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Report No 684
ISSUED BY THE INTERNATIONAL TRADE ADMINISTRATION COMMISSION OF SOUTH AFRICA