/ 7 September 2022

Local french fry importers push back against anti-dumping tariff

French Fries
Food importers and local manufacturers are lobbying against a heavy anti-dumping tariff imposed by the South African International Trade Administration Commission (ITAC) on frozen french fries imported from Europe. (Gado/Getty Images)

Food importers and local manufacturers are lobbying against a heavy anti-dumping tariff imposed by the South African International Trade Administration Commission (ITAC) on frozen french fries imported from Europe.

According to Fred Hume, managing director of Hume International, one of the largest food importers in South Africa, the heavy import duties on products like frozen chips came about without doing due diligence and that ICAT made the call without consulting with the supply chain that the decision directly impacts.  

“We have been afforded [tariff] protection over the past decade, but the effects on us as importers in South Africa is that they have disrupted our supply chains numerous times,” said Hume.

French fry importers have asked the government to consider an approach similar to the poultry industry where anti-dumping duties were suspended for 12 months. 

There is a difference between french fry production and potato production, Hume said. The raw potato only accounts for one element in the production of french fries, but 50% of the cost. The other 50% of the cost includes processing, oil, packaging and energy input,

“South Africa does produce sufficient table potatoes that one would buy as a pocket of potatoes from retailers,” said Hume. “They are not, however, producing the variety needed for french fries in sufficient quantities, and the local industry does not have sufficient capacity to process those french fries.”

This means that the frozen french fry industry in South Africa has depended on imports from Europe to keep the price of processed frozen potatoes steady, yet competitive, and for demand to be met. 

“We can’t fly french fries from Europe to South Africa without considering duties that make the price at least 50% more than what local producers are trading at,” Hume said. “For the government to introduce duties in this particular year makes no sense.”

Illogical anti-dumping duties

According to a statement by Hume International, frozen chips from Belgium face tariffs of up to 23.06 % and up to 104.52 % from the Netherlands, while German suppliers have been hardest hit with new duties of 181.05 %. 

According to Hume, ICAT implemented a provisional anti-dumping duty on these European countries which is set to expire on 14 January 2023.

“Before the anti-dumping tariff, we were trading at R18 per kilogram, but [now at] R30 per kilogram,” said Hume. “We have a letter from one of the major producers of french fries in the country. From May, they have more customers but not enough raw material, which will result in a shortage of their supply.”

A historic drought in Europe, massive increases in input and gas prices, as well as  packaging and transportation costs are all considerations for processed food importers, in addition to the trading price of goods by competing, local suppliers. The fuel price also affects the price importers trade at, said Hume. 

Asked about the reason for imposing heavy anti-dumping duties — which are typically aimed at keeping prices fair in industries with foreign and local players — ITAC said there had been an investigation into frozen potatoes after allegations of dumping.

“The anti-dumping duties on frozen potato chips lapsed while ITAC was conducting a review, investigating those duties, which is a process of reviewing whether the [tariffs] were still needed,” ITAC communication officer Thalukanyo Nangammbi said.

Dumping is an unfair business practice where a company sells the same goods at a lower price on the export market than in its domestic market, explained Nangammbi, adding that ITAC believed this was happening with frozen potatoes. ITAC calls for tariffs when dumping causes or threatens to cause material injury to domestic manufacturers.

“Material injury is measured in terms of declines in the prices, sales volume, profits, market share, employment and other factors of domestic manufacturers,” Nangammbi told the Mail & Guardian. “As a result of the lapse of the duties, ITAC self-initiated the investigation which is still ongoing and provisional measures (were) imposed while the investigation continues.”

But imposing such tariffs may do more harm to an industry where local producers cannot meet demand, making imported goods necessary to keep prices at an equilibrium. 

“The fact that we are able to import at those levels and sell them to markets indicates that the market is undersupplied and we cannot protect the market that cannot supply itself. This [tariff] makes no sense in the short run,” said Hume. 

“There are legitimate reasons for anti-dumping legislation, which is why bodies like ICAT were created in the first place. If unfair, uncompetitive imports harm local industries and result in job losses, that is something we’d like to prevent. We just don’t think the anti-dumping regulations have been correctly applied to this case.”

Duties are a good idea when applied for a limited period of time with feasible deliverables attached, like expanding production capacity or increased jobs to improve efficiency, he said.

“The end result is to lift tariffs and allow the local industry to compete with global peers because that stimulates competition and results in the best possible price for the consumer,” said Hume. 

French fry producers and importers have requested the government to suspend the tariff until January 2023 to facilitate industry-wide consultation, Hume said.