Indications are that the global rise in food prices because of the war in Ukraine has only just started and is likely to get worse. Fortunately, South Africa has a weapon that can mitigate some of the impact for poor households, writes Francois Baird.
By Francois Baird
INDICATIONS are that the global rise in food prices because of the war in Ukraine has only just started and is likely to get worse. Fortunately, South Africa has a weapon that can mitigate some of the impact for poor households – remove the 15 percent value added tax (VAT) from most chicken products.
FairPlay launched its “VAT-free chicken” campaign in 2018, when VAT went up from 14 percent to 15 percent. We were joined by the SA Poultry Association (SAPA) in submissions to Parliament and to the Woolard panel set up to investigate removing VAT from some essential items.
As we pointed out then, chicken is South Africa’s most popular meat protein source and is the food product most consumed by lower income households. That means that zero-rating chicken would directly target the poor, who are most affected by food price rises.
The Woolard panel appreciated those benefits, but unfortunately it decided not to recommend the removal of VAT from chicken, mainly because they could not agree on a definition of which chicken products the move should apply to.
This was despite consulting firm PwC, on behalf of Sapa, having provided detailed research and recommendations to zero-rate what was termed “primary chicken” – fresh and frozen whole chicken and the individually quick frozen (IQF) frozen packs of mixed chicken portions mainly bought by lower income consumers. Cooked meat and packs bought by more affluent consumers are specifically excluded.
Some panel members also expressed doubts that chicken producers might seek to profit from zero rating and not pass on the benefits to consumers. Again, this was despite an undertaking from the poultry association that the zero-rating benefits would indeed be passed on, and pointing out that chicken prices are public, regularly and prominently advertised and therefore easily monitored.
It is time to revisit those reservations because they should not stand in the way of removing VAT from specified chicken products as soon as possible. Food price inflation is already hurting South African consumers and poorer households are going to suffer the most in what seems likely to be a steady rise because of Russia’s invasion of Ukraine.
Russia and Ukraine together export much of the world’s wheat – shortages are already driving prices up and bread will become more expensive. Similarly, the Ukraine war is going to make fertiliser and maize more expensive, which will hit animal feed prices.
But the primary driver of food price inflation at the moment, according to an analysis by First National Bank is the sharp increase in oil prices caused by the Ukraine conflict and the embargo on Russian oil by the United States and others.
Oil rose sharply from $64/barrel in early December to $124/barrel this month, including a brief spike to $139/barrel. The price has dropped slightly, but international tensions and the Russian embargo continue. There has been speculation that, if things get really bad, oil could go to $200/barrel, or even $300/barrel.
The oil rise is already making fuel more expensive all around the world, including South Africa. Petrol went up by nearly R1.50/litre in March, and could rise by another R2/litre in April. Higher fuel prices make everything more expensive, including food.
We face the prospect of a wave of grain and fuel price rises resulting in higher food prices on a monthly basis. The inevitable result of that is hunger and starvation among the country’s poor.
Action is urgent, starting with the removal of VAT from the chicken products that will have most impact on low income households. The 2018 estimate was that this would cost the fiscus between R1.2 billion and R1.9 billion.
In his February budget, Finance Minister Enoch Godongwana had a R182 billion additional tax income, mainly from increased commodity sales. He said he planned to spend it cautiously, and was proved right when the Ukraine crisis upset some of his calculations.
However, that tax windfall is continuing, with South Africa’s agricultural and mining exports selling at higher prices because of international tensions. And that means he has room to move on zero-rating chicken ahead of a looming hunger crisis.
FairPlay will be sending Minister Godongwana copies of the 2018 submissions on VAT-free chicken. They contain valuable information on how it can be done and how it targets low-income households.
The submissions summarised the 10 most important reasons to remove VAT from chicken:
- Chicken is the food product consumed most by lower income households.
- Lower income households buy more zero-rated food items.
- Chicken is the highest protein meat source per rand spent.
- Chicken is South Africa’s most popular source of meat protein.
- The South African consumer is under pressure.
- There are no zero-rated meat items.
- Cheaper chicken would increase demand and create jobs.
- Chicken is an environmentally sustainable way to produce quality animal protein.
- The chicken industry is a strategic industry providing jobs to thousands.
- The chicken industry is nationally important and economically beneficial.
Those arguments remain valid four years later, but the Ukraine crisis has added new urgency. The time to remove VAT from chicken is now.
* Francois Baird is the founder of the FairPlay movement.
** The views expressed here are not necessarily those of the DFA.
– BUSINESS REPORT