The recent slashing of the wheat levy to nine percent has reignited an eight-year war between local millers and bakers, with one major milling company saying it has no choice but to cut 120 jobs.
BusinessWeek has learnt that the Trade Ministry recently slashed the wheat levy to nine percent continuing a one and half percent annual reduction instituted from 2015 and designed to eventually completely remove the levy.
Government imposed the levy in 2003 to protect the then infant local milling industry from predatory pricing or “dumping” by South Africa’s powerful millers. Bakers however mounted a relentless campaign against the levy, saying it had transformed local millers into price monopolies who wielded unfettered control over the baking industry, including even credit terms and conditions available to local bakeries.
Both sides have argued that citizen jobs and productivity capacity are on the line, although millers say their troubles are deeper as the collapse of the milling sector will render far more people unemployed, greater investment lost and also affect millers’ associated businesses such as maize milling.
New Investment, Trade and Industry minister, Bogolo Kenewendo appears to have set off the latest round of the long-running dispute, by approving the latest reduction of the wheat levy just weeks into office without meeting the warring parties. Kenewendo seemingly further stoked matters by informing Parliament last month that the wheat levy was still at 15% and was protecting millers from being overrun by the South Africans. “We are grappling to understand why the Minister presented in Parliament that they are protecting millers with a 15% levy on wheat when she herself signed an instrument 8 reducing the levy to 9%,” Millers Association of Botswana president, Nkosi Mwaba told BusinessWeek.
“The Ministry says it is doing all it can to protect local industries and the jobs they create yet the reality as far as millers are concerned is the exact opposite.”
Mwaba said bakers were actually the sector enjoying protection in the battle, and relations in the dispute were no closer to warming.
“They have informed us that they would rather buy flour from SA and the levy just makes their flour imports more expensive for them,” he said.
While representatives of the Bakers Association of Botswana were unreachable this week, they previously told BusinessWeek that they would have preferred a five percent annual reduction of the levy, as their businesses were collapsing under the prices and quality offered by the local millers.
BusinessWeek has established, meanwhile, that with nearly 96% of bakeries now established inside retail chains, local bakeries are facing a war on different fronts.
The major retail chains are South African owned and the falling wheat levy means easier access to discounted wheat flour from across the border, resulting in further undercutting of the bread prices offered by local standalone bakeries.
“This is where I differ with the Association because it’s not the wheat levy killing us, it’s these in-store bakeries that undercut our prices and enjoy better locations than we can manage,” Prestige Bakery managing director, Reuben Keddy told BusinessWeek.
“Even if the wheat levy goes to zero, the only one benefiting will be the retail stores and their bakeries, not us small bakeries.” A snap survey by BusinessWeek on Wednesday revealed that the price of a no-label loaf of white bread ranges from P4.95 in Spar, to P5.45 in Choppies and P6.45 in Pick n Pay. Meanwhile, long-standing baker, Capri, sells the same loaf for P6.65.
“For these retail stores, bread is just a crowd-puller amongst many other items. For us, it’s all that we are doing,” Keddy said.