Millers, bakers eat the bread of discontent
Mbongeni Mguni | Friday June 5, 2015 14:59
Depending on which side speaks, both arguments sound compelling.
The millers say at least 800 local jobs are at risk if government reduces or removes the wheat levy, as their products will be flooded out of the market by cheaper South African imports.
The bakers say the levy unfairly protects local millers and has allowed them to create a cartel, which imposes prices, and terms that are leading bakeries to their death.
The complexity of the argument and which side to heed, is part of the reason the trade ministry adopted a laissez faire stance in 2013, extending the levy, while mulling on its future options.
However, the noise from millers in South Africa was too loud to ignore. The wheat levy, the South African millers argued, was in violation of SACU’s borderless trade provisions and the Government of Botswana found itself running out of options.
The South Africans filed a complaint and on April 8, 2015 trade minister, Vincent Seretse, gazetted a 1.5 percent reduction to the wheat levy.
Under government’s plans, the levy will be reduced by 1.5 percent to zero over the next 10 years.
According to a study by Decisive Aggregates, the 15 percent wheat levy on imported wheat flour was introduced in 2003 under the Control of Goods Act, a year before the revised SACU agreement came into force.
“The levy was solely to safeguard against the danger of predatory pricing from outside the country. Some Botswana millers had reported cases of threatening supplies into the country (and) after 18 months of protracted petitioning, the then Ministry of Commerce and Tourism agreed to introduce the levy.”
Millers say the levy has allowed them to develop their industry into one of the few sustainable in Botswana, attracting millions of Pula in investment, contributing to economic diversification and food security, while employing hundreds of Batswana.
“Most of our members are continuously investing in their businesses; one of them commissioned a wheat plant recently,” says Nkosi Mwaba, chairman of the Botswana Millers Association.
“There are concerns about where this business is going from a legislative environment point of view. If an investor comes here saying ‘I have X amount to invest in milling,’ the first question they would ask is how the country has planned in terms of trade in the region.”
Mwaba represents a group of millers who collectively employ 800 workers. It is Wednesday and the interview is at his headquarters at Bolux Milling outside Ramotswa. The backdrop is the sound of heavy machines milling tonnes of wheat, maize and other products, the sound of industry in action.
Mwaba says there is more to be lost than the 800 jobs his association represents in wheat milling.
“We estimate that together with the downstream, the jobs threatened are between four and five thousand,” he says.
“We are a very huge part of the beef sector. The feedlots that are contracted to the Botswana Meat Commission and the farmers contracted to the commission get their feed from millers.
“Ask any farmer doing business with the BMC if their business would still be viable without access to feed coming from local millers and the answer would be ‘no’.”
Mwaba adds: “During the 2012 drought, a lot of livestock fell off as there was no pasture. We stepped in, in partnership with government and provided an opportunity for farmers.
“The Agriculture Ministry bought from the local millers and distributed to farmers through Livestock Advisory Centres across the country. One of the best steps was that they subsidised that feed and there was more survivability of animals during the drought.”
With President Ian Khama almost certain to declare drought again this year, millers have an ace up their sleeve in the effort to preserve the wheat levy.
For Mwaba, the wheat levy issue is not an ‘either or affair’. In fact, the Millers Association met on Tuesday and is preparing to table alternatives to the Ministry of Trade.
“Yes, there’s SACU and its important, but you cannot ignore the fact that each member state has matured differently,” Mwaba says.
“Look at the size of the advantage that South Africa has in terms of milling. It would be unfair to expect Botswana to compete against the other member states that are leaner and more mature, without government putting in mechanisms to level the playing field.”
He continues: “South Africa produces 2.5 million tonnes of wheat flour per annum and we produce 120,000 tonnes at the top end. In one year, we produce what they produce every three weeks.
“That’s a picture of how quickly they can swallow us up if there’s no balancing mechanism.”
According to the chairman, even the recent 1.5 percent cut is threat enough for the industry as this weakens the effectiveness of the levy and with that, the reason it was instituted in the first place.
Mwaba argues that removing the levy, while dumping looms, without alternative protection is tantamount to ringing the death knell for a successful, non-mining manufacturing sector.
“We are saying it was put in place for dumping and this dumping is still a threat. The way we see it, the wheat levy is effective at 15 percent.
“Don’t think that dumping will only take place when the levy reaches zero percent after 10 years. South African producers know that by next year it will be at 12 percent and so on.”
There is yet another danger of tampering with the wheat levy for millers, Mwaba says. The local milling industry integrates wheat and maize milling for viability and if wheat milling collapses, ‘the viability of maize is at high risk’.
The association is hoping for an audience with trade minister, Vincent Seretse, soon where they will lay down their case including alternatives even for the SACU provisions.
While the millers have a glimmer of hope depending on the outcome of their planned meeting, bakers say their industry is sliding down the drain.
Instead of celebrating the April 8 reduction of the wheat levy and the plan to scrap it completely, bakers say the entire matter is the horrible anticlimax to years of lobbying.
“We wanted it to be reduced by five percent every year; 1.5 percent is nothing,” says Bakers Association of Botswana secretary general, Futhi Mononi.
“We have been going up and down to the ministry. We have been pleading with them over the years and we have large amounts of documents sent to them.
“We are toothless and there’s nothing we can do. The action has already been taken and that’s it.
“There are interests in this thing.”
For bakers, the wheat levy is only one of a plethora of adverse factors affecting their viability. From the water and power cuts, to the refusal by the Labour Ministry to grant permits to foreign bakery workers, the industry is in trouble.
Small, non-automated owner-managed bakeries are particularly in trouble, as they cannot compete with the in-store bakeries all large retail chains have. The smaller bakeries are often unable to secure space near customers, due to their designation as manufacturing, and find themselves forced to move to light industrial areas where customers are few.
By comparison, the in-store bakeries run by the large retail chains are fully automated, suitably funded and enjoy the luxury of being located in popular malls and centres.
Mononi says she is on the brink of shutting down her own operation, Crown Bakery, a landmark institution in Good Hope.
“Bakeries are dropping, if you look across the country,” she says.
“The ones owned by Batswana are suffering and go tla sala tsa makgoa fela. I have thought of closing myself.The wheat levy issue just makes things worse.”
Mononi is pleading with the government to lift the wheat levy for ‘six months only’ to allow bakeries to ‘recover’. The bakers say cheaper flour imports from South Africa will be a shot in the arm for their industry.
In addition, the Bakers Association says open borders will allow them to select the quality they desire, instead of being restricted to what local millers are offering them.
While denying that their prices are “cartelised” millers say the bakers do not understand the implications of what they are asking for. Open borders, they say, will expose local bakeries to prices prevailing in other countries, maybe higher than Botswana.
The Ministry of Trade, which is the Pontius Pilate of the puzzle, is once again in a quandary.
As he sits between a rock and a hard place, Seretse will also recall the real value the wheat levy has been bringing to treasury over the years. Between 2003 and 2011, government raked in P32.5 million from the wheat levy.
Those millions will go up in smoke together with a viable, local industry, investor millions and jobs, millers say. Millers argue they are really just exporting jobs.
Those millions will be transmitted back to the bakeries in the form of savings on lower wheat flour prices, bakers say. They further argue that they will be creating and saving jobs, especially for the small industry.
The stalemate of 2013 has returned.