The lowering of the tariff comes amid an expected 16% decline in South Africa’s 2017-18 wheat crop, to 1.6 million tonnes.
“The Western Cape Province, where more than 60% of South Africa’s wheat is planted, is currently experiencing a major drought,” the USDA noted in the report. “As a result, the decrease in the wheat import tariff did not impact the domestic wheat price significantly. The weather remains the primary focus in the domestic wheat market as the current wheat crop approaches the pollination stage of development, which requires high moisture. Unfortunately, the outlook for rain in the Western Cape is bleak as the South African Weather Service indicated that the southwestern parts of the country could remain fairly dry over the foreseeable future.”
The USDA said the wheat tariff is calculated based on a variable formula that is supposed to ensure that changes in the market are taken into account. The formula is based on a reference price that is the five-year average price of U.S. Hard Red Wheat No. 2, plus adjustments for distortion factors (subsidies) in the global wheat market and subtraction of the average freight costs to South African shores, the USDA said.
“The reference price was set by the International Trade Administration Commission of South Africa (ITAC) at $279 per tonne in June 2017,” the USDA noted in the report. “The wheat tariff is then determined by calculating the difference between the three-week moving average of the United States Hard Red Wheat No. 2 and the reference price. If the difference is more than $10 for three consecutive weeks, the tariff is triggered. The import tariff is then calculated according to the difference between the two dollar prices.”
The USDA noted that South Africa is forecast to import more than 2 million tonnes of wheat during the 2017-18 marketing year, which would be double the expected wheat imports in the 2016-17 marketing year.