Food manufacturers call for drop in import duties

If the rand continues to weaken, further price increases are expected. More people will face poverty, starvation and malnutrition, Razak Moosa, the Chairman of the South African Oil Processors Association (SAOPA) said recently.

SAOPA appeals to Finance Minister Trevor Manuel to reduce the 10% import duty on edible oils and oilseeds so that these savings could be passed on to consumers.

Considered among the basket of goods from which the government calculates the consumer price index and thus inflation, the higher cost of cooking oil, margarine and soap will essentially affect poorer consumers more dramatically than their more affluent counterparts.

The by-product of palm oil is used in toilet and laundry soap, while baking fats and confectionary fats are consumed in breads, the broader impact of increased raw material costs has a knock-on effect on these prices.

Remove duties and VAT

"South Africa does not produce enough oilseeds and imported edible oil covers the shortfall. Just as other foodstuff - rice, mealie meal etc. does not have VAT, the Minister should remove the VAT on margarine. Consumer organisations and others should also request our Finance Minister to make food affordable to the poor by removing import duties on essential raw materials for manufacture of food products and any VAT thereon," states Moosa.

"This is a better way than subsidies which can be abused if not properly monitored. A further anomaly is that edible oil manufacturers have to pay VAT on imported edible oil raw materials whilst the bottled product sold is free of VAT and additional cash is required to meet VAT outlays before the SARS refunds the amount."

As with other commodities, local farmers price sunflower seeds on the South African Futures Exchange (Safex) in line with world markets which have risen over 40% in the past four months. Removing import duties on edible oil and oilseeds would translate into lower prices on oilseeds traded on Safex and therefore on cooking oil, soap and margarine. Naturally, South African farmers will be making huge profits at current Safex prices.

Affected harvests

Moosa said since December the raw materials required for producing margarine, laundry and toilet soap - including the by-products from palm oil - have risen by about 30% and doubled in the past year. Sunflower oil and blended cooking oils have sustained a 35% hike since November, driven by poor weather conditions in the world's oilseeds producing areas and a growing market.

Producers in Argentina, the US and Europe were pushing up prices in the light of harvests affected by heavy rains, while the excessive snow falls in China have significantly impacted on the ability of Chinese oilseed growers to meet market demands. However, the growth and consequent rising demand in Chinese and Indian markets meant these economies could afford higher prices to the detriment of developing nations.

The international explosion towards biofuels had also seen oilseed producers in Malaysia, the US and Europe converting their oils into biofuels rather than edible consumption. While the West is concerned about energy security, Africa has to worry about food security and cannot compete with the higher prices the West is prepared to pay for its biofuel needs.

"As the rand weakens against the US dollar, local selling prices will continue rising and affects consumers at a time when they are struggling with higher interest rates, school fees and Christmas debts. Without edible oil products in their diet, consumers' health will suffer," Moosa said.

Cooking oil is derived from sunflower seeds and soya beans while the by-product oil cake meal forms the major ingredient to the animal feed mill industry. Oilseeds remain a key crop for Free State, Mpumalanga and Limpopo farmers.