The 30% import tariff imposed on South African products destined for the US from Friday will not remain at this level indefinitely, says Louw Pienaar, senior analyst and agricultural economist at the Bureau for Food and Agricultural Policy (BFAP).
By Michelle van der Spuy, senior journalist at African Farming and Landbouweekblad
Pienaar was one of the speakers at the South African Table Grape Industry (SATI) information day held on Friday at the Kronenburg Estate in Paarl.
Although farmers, especially some citrus farmers in the Western and Northern Cape who supply specifically to the US, need to make plans to mitigate the immediate impact of the increased tariff, past trends have shown that a tariff not only goes up, but also comes down.
He says between the Trump tariff, increasing geopolitical tensions and all the uncertainty that comes with it, there are enough things to keep farmers awake at night – if that’s what they want to focus on.
However, according to him, America’s increased import tariff will not be a long-term issue.
“From the 1960s and 1970s, there was a trade explosion because trade benefits both the exporter and the importer. So, it is beneficial for America to trade through imports and exports.”
He says import tariffs have been raised several times in the past for various reasons, but it wasn’t long before it was realised that the increase was a bad idea. The increase is usually followed by a much longer period of lower tariffs, as the economic benefits of trade are so great.
Pienaar says in light of the trade agreements Trump has already concluded with some countries, the import tariff on South African products will be 10% or 15% by the end of the year.
He says it is understandable that people are very concerned when there is a sudden move from a 0% import tariff – thanks to the American Growth and Opportunity Act (AGOA) – to a 30% import tariff. However, he says the impact on the entire agricultural sector is not as great as some people may fear.
As several other sources have also indicated, the increased import tariff will not have a significant impact on the entire agricultural sector, but rather on specific industries, especially industries such as citrus and table grapes, which are part of the top 25 agricultural products that South Africa exports to the US.
These products account for 80% of South Africa’s agricultural exports to the US. In terms of revenue, most of South Africa’s major agricultural industries, including poultry, maize, dairy and potatoes, have limited or no exports to the US and therefore an increased import tariff poses no risk to them.
Also read: ‘AGOA is dead, now look ahead and make other plans’
Prospects For The Agricultural Sector
Pienaar says despite the fact that the agricultural sector is more volatile than any other sector, because the profit margins but also the risks in agriculture are greater, the local agricultural sector is currently experiencing a good year, according to BFAP.
According to BFAP’s projections, the sector’s income will remain stable and eventually even increase in the future. However, this depends on factors such as the rand-dollar exchange rate and issues such as animal diseases. As input costs – farmers’ biggest enemy – rise faster than prices, farmers naturally need to produce more to be more profitable and manage input costs as best as possible.
If the increase in one of these input costs – labour costs – is higher than inflation, it is of particular concern to labour-intensive industries such as the table grape industry.
He warns that while the industry has achieved good prices on export markets over the past two years, BFAP does not expect this trend to continue indefinitely. “Don’t expect that this year’s prices will be the new normal next year.”
Also read: Citrus growers appeal to Ramaphosa for urgent US trade intervention
Expected Impact Of Trump Tariff
He believes people currently following media reports about the impact of the Trump tariff will probably shy away from investing in the agricultural sector. However, only 2.8% of South Africa’s total table grape exports were destined for the US last year.
“Obviously you are not just going to write off these export-quality grapes. A portion of it will still be exported to America, while the rest will be diverted to other markets at a higher price.”
Although a much lower 10% import tariff is levied on table grapes from Chile and Peru – South Africa’s biggest competitors on this market – the 30% import tariff will not be the end of the local industry, he says.
According to BFAP estimates, the impact of this tariff on the local table grape industry will mean a 12% decrease in exports to the US. The overall impact on total growth and production value will be a decrease of 1.5% to 2%, according to BFAP.
These figures are not small for those who deliver 40% or 50% of their production to America. “If you are in that position, of course you will have to make plans. But to say everyone in the table grape and citrus industry is threatened would be disproportionate.”
He believes this 1.5% to 2% could be made up by, for example, resolving issues in the Cape Town port, from where most of South Africa’s table grapes are exported.
“There is an important book I try to read every day that says there is a time to plant and a time to uproot what has been planted. Considering that a 30% import tariff is levied on 2.8% of our table grapes in America, I ask today: Is it time to plant or to uproot?”
