Food, glorious -zero-rated food

Cries from Cosatu to zero-rate more food products, as well as the proposal of a national food control agency, has generated more misinformed debate than light on government’s food policy.

Following a Cabinet lekgotla last week, President Thabo Mbeki announced that a draft framework for a national food control agency has been approved for consultation. It is not clear what the agency would do although Mbeki said it forms part of government’s response to rising food prices.

The president’s comments followed nationwide protest action by Cosatu, during which congress leader Zwelinzima Vavi reportedly called for the zero-rating — effectively, the removal of value-added tax — of a number of foods. including bread, salt, paraffin, mealie meal, fish and vegetable oil.

The national treasury has, however, published a list of 19 foods that are already zero-rated — including brown bread, mealie meal, tinned pilchards and sardines and vegetable oil. Illuminating paraffin is also a zero-rated item.

The zero-rating of additional foodstuffs will not necessarily help poor people, says the treasury. Finance Minister Trevor Manuel told Parliament last week that concessions on the 19 food items have benefited producers and suppliers but not always the end consumers.

‘While some of the benefits have been passed to the final consumer, the data suggests that wealthier households benefit more in absolute terms,” he said.

Despite apparent confusion on the issue, alliance partners are in broad agreement about food policy, says SACP deputy general secretary Jeremy Cronin.

At the last alliance summit, the parties reached the understanding that zero-rating food is not a sustainable way of addressing soaring food prices, says Cronin.

He says, however, that there is ongoing discussion within government about possible short-term solutions to the food problem.

These could include zero-rating additional foods, but could also include more interventions at the level of the value chain to guard against price collusion, which drives up prices for the poor.

But, says Cronin, the only long-term solution to the problem is to address falling food production. He says that greater understanding of the market forces driving the drop in production is needed to tackle the issue seriously.

Cronin also says there is growing concern about land reform policy within the SACP and to a larger extent the ANC.

‘The focus needs to move away from rights-based land reform,” he says. While rights are very important, he says, more attention needs to be paid to microeconomic interventions to help production, including better support for emerging black farmers in the form of access to finance.

Other experts agree that zero-rating isn’t a sustainable solution to rising food prices and that land reform policy needs reviewing to ensure sustainable food production.

‘The poorest people in South Africa buy a large proportion of their food in the informal sector, where VAT is not an issue,” says Nick Vink, head of agricultural economics at the University of Stellenbosch.

Vink argues that rather than government losing the VAT revenue stream, other ways of getting food to the very poor need to be found.

Similarly Ronald Ramabulana, chief executive at the National Agricultural Marketing Council (NAMC), says that tax cuts would not solve rising prices.

‘Your solution to this long-term is to produce enough food,” he says.

The NAMC monitors food prices, input costs for farmers and international agricultural trade.

Ramabulana says a surplus of food is what will drive prices down without hurting the market. He argues that one way to create such a surplus is put all land under claim through land reform policy ‘back into production”.

He says that if government were to zero-rate additional foods, such as poultry, it would cost the country around R5billion in lost revenue.

VAT generated R149,6billion for the government in 2007/08 and is the second-largest source of income for the government after personal income tax.

‘Rather spend that money increasing production,” Ramabulana says.

It is not clear what the proposed national food control agency would do that does not overlap with what the NAMC already does, says Vink.

‘The agency is a good idea if it is coupled to the NAMC,” he says. ‘Otherwise we’re going to see another duplication of effort.”

The department of agriculture is reportedly the arm of government that would be responsible for the national food control agency.

Sources say the agency will in fact have nothing to do with controlling food prices. It will, they say, be concerned with monitoring food security as well as food safety standards.

The Department of Agriculture did not respond to requests for information on the agency by the time of going to press.