South African wheat prices climbed to a record as duties on imports of the grain were set to climb about 30%, following a decline in global prices and a drop in the local currency.
Wheat for delivery in July rose as much as 1.4% to R5,220 a tonne on the South African Futures Exchange, the highest since trading started in 1997, and was at R5,180 by midday on Thursday.
The tariff on wheat imports will probably increase to R1,591.40 a tonne, from the current record R1,224.31, the South African Grain Information Service said. The tariff has climbed more than sevenfold since October 2014, driven by the drop in international wheat prices, which are close to a six-year low, and by weakness in the rand, which has declined 22% against the dollar over the past year.
“A high import tariff is also a double-edged sword, protecting farmers from unfair international competition on the one hand, but burdening consumers through increased prices on the other,” said Agricultural Business Chamber economists Wandile Sihlobo and Tinashe Kapuya.
The weak rand and the worst drought in more than a century induced by an El Niño weather phenomenon boost domestic food prices and threaten to keep inflation outside the central bank’s 3% to 6% target range for an extended period. There are indications that the pass-through from the exchange rate to inflation is increasing and food-price growth is forecast to climb to about 12% in the third quarter of this year, the central bank said last week.
While SA is the sub-Saharan region’s biggest producer of wheat after Ethiopia, it is still a net importer of the grain, according to the US Department of Agriculture.
SA’s wheat import duty was approved in April by the Department of Finance, which at the same time proposed to Trade and Industry Minister Rob Davies that he consider “an urgent and accelerated review” of the formula used to work it out. The tariff is based on calculations using a formula created by SA’s International Trade Administration Commission.