No new duty on Chinese greens as Patel juggles trade and Bricks ties

05 Jul 2023

04 July
Business Day
by Michelle Gumede

Trade, industry & competition minister Ebrahim Patel has rejected an application by local frozen foods producer Nature’s Garden for a near threefold increase in customs duties on frozen mixed vegetables imported mainly from China.

The Johannesburg-based company approached the International Trade Administration Commission (ITAC), an independent body that investigates customs duties, in 2019. It asked that customs duties on imports be increased from 10% to the World Trade Organisation-bound rate of 37%, arguing local producers were struggling to compete against the low-quality, but competitively priced, mixed vegetables coming into SA.

Business Day understands that after conducting an investigation, ITAC’s findings were in favour of an increase. These were submitted to the minister. Patel rejected ITAC’s findings, opting against increased duties on the products. He referred the matter back with a request that ITAC investigate the detrimental effect of any potential increase in the duty on consumers in the lower segment market.

In the latest Government Gazette, published on June 30, Patel said in deciding whether to impose an increase, he has considered the context of high food prices that affect poor and middle class consumers, pressures on household incomes due to external shocks to the economy, the decline in the level of imports of frozen vegetables from 2020, and the likely effect on jobs and industrial output in the economy.

As consumers come under financial strain amid surging fuel prices, inflation and interest rates, the government is under pressure to ensure prices of staple foods and vegetables remain attainable for consumers while protecting local industries from imports. After “weighing up all the circumstances”, Patel decided to reject the application for an increase in the duty on frozen mixed vegetables, the department of trade, industry & competition said in the gazette.

Patel “took into account that food prices in SA, and globally, are rising rapidly and that the impact of the rise in inflation on not only the poor but the middle class [too] is well documented”. This is against the backdrop of the tough juggling act Patel has to perform in considering imposing any trade instruments on SA’s Brics partners, as he has to balance diplomacy with the country’s trade ambitions.

Nature’s Garden group CEO Bruce Sanday said the quality of mixed frozen vegetables from China is inferior to that of local ones, but the price point is often competitive. “What it does, is hold the local market back, which means that we can’t profitably compete, so we needed to deal with that, which is why we looked at a change to the bound rate,” Sanday told Business Day on Tuesday.

“It makes local businesses reluctant to invest in capacity, so it holds back growth.” Sanday said low-cost imported mixed vegetables comprise about 10% of the market. Though global supply chain disruptions have slowed down imports, he warned they will “rear their ugly head again” as soon as things normalize. Europe and China are among the largest exporters of frozen vegetables to SA, where demand for the product is high due to its convenience and long shelf life.

Nature’s Garden, a big player in the local frozen vegetables market, supplies grocer chains Pick n Pay, Makro and Spar. It is also an approved supplier to fast food firms KFC, Spur, Nando’s, Captain Dorego’s and Barcelos. Donald Mackay, founder and director of XA International Trade Advisors, an SA trade advisory firm, said SA struggles with imported products because it is highly uncompetitive and decision-making takes too long.

“And we are so uncompetitive because of structural issues in the economy,” he said, adding that the cost of doing business in SA is high due to constraints such as load-shedding, port delays, theft, poor roads and poor other infrastructure, issues that international businesses do not have to contend with. ‘High-cost environment’ “We have created a very high-cost environment ... and you can’t fix that problem with duties, you have to fix the underlying problems,” said MacKay.

Sanday said all is not lost as Patel has acknowledged that something should be done and has instructed ITAC to reinitiate the investigation, as opposed to Nature’s Garden having to drive the process. The review of the customs duty on frozen mixed vegetables is expected to lead to a report with recommendations in nine months. “So his answer was not a no, it was a not now,” said Sanday.

“When the minister does make the change, the imports out of China will slow down, which means that local capacity will increase ... between us and [frozen food producer] McCain, we could easily pick up the slack.” This would be done by planting more vegetables, which means more farm and processing jobs, allowing more money to stay in SA. ITAC spokesperson Thalukanyo Nangammbi confirmed that the review is expected to be initiated through publication in the Government Gazette.