Bakeries want flour levy scrapped out

The long fought battle between millers and bakers is far from over, with the latter accusing the former of monopolistic tendencies. Hardly a week after the animosity between the two organizations resurfaced at a recent Business Botswana (BB) stakeholder seminar, where representatives of the two associations went on the offensive, a baker from Lerala and a member of the Bakers Association, Botshabelo Ontse, has called millers “a monopoly.”

In an interview with Gazette Business, Ontse challenged the purpose of the 15 percent wheat flour levy imposed on all imports of bread flour.
“Initially, the levy was introduced some 30 years ago to protect the nascent milling industry, now the goal posts have shifted and the objective is now to protect the domestic milling industry from unfair competition. How long does the milling industry need to mature and compete with millers from other countries,” Ontse asked quizzically.

Ontse accused millers of failure to meet demand. “When you place an order with the millers they tell you that stock will be available in a week. I tried to open an account recently with Bokomo, they told me they no longer take new clients because they are overwhelmed,” she said.

Ontse also accused local millers of poor product quality. “I once returned to Bolux about 400 bags of flour because they did not meet the quality standard,” she explained. She also decried exorbitant prices charged by local millers. Ontse said when she imports wheat flour from South Africa, which includes the 15 percent levy and transport costs, the price per bag she pays still beats local miller prices.

Ontse was corroborated by Futhi Morupisi, a baker from Good Hope and also Secretary of the Bakers Association. She accused the millers of supplying underweight bags, low quality product, and charging exorbitant prices.

“It’s cheaper to buy wheat flour from South Africa, but it’s quite a hassle processing paper work at the border. So, we have resigned ourselves to our fate and buy from local millers,” she said, dismissing the levy as a tool for millers to run a monopoly and profit from lack of competition.

Asked to explain the quality complaint she raised, Morupisi said that because of poor quality flour, loafs sank in the middle. Quizzed if the poor quality flour came from both the millers; Bolux and Bokomo, she responded; “Bokomo is better, if you raise a complaint with them they own up and sometimes explain to you that they had poor quality wheat. They would even assist you with flour enhancers. But Bolux will never own up and take the blame,” she said.

Morupisi occassionaly takes flour samples to Botswana Bureau of Standards (BOBS) labs for quality testing and proper weight. Some samples have failed the quality tests and some bags did not weigh the expected 50kg, with some weighing as low as 45kg. She shared the test results with this publication.

According to Morupisi, she even took Bolux to court over the matter, a case she lost on a technicality because her lawyer had not filed the BOBS test results.
On the question of what the Bakers Association has done to advocate for the removal of the wheat flour levy, she said they have engaged every stakeholder including Government through the Industrial Affairs Department within the Ministry of Trade and Industry, the Competition Authority, and the Millers Association. “After a lengthy engagement, Government decided on the matter and the Minister of Trade wrote us to say the levy will be phased out at the rate of 1.5 percent each year over the next 10 years,” she said, noting their unhappiness about the decision. She reiterated the Bakers Association’s wish to have the levy discontinued. An official at the Ministry of Trade confirmed that indeed Government decided to phase out the wheat flour levy over 10 years, and highlighted that it is currently charged at the rate of 13.5 percent.

However, Chairperson of the Millers Association and Head of Corporate Affairs at Bolux Milling, Nkosi Mwaba has argued in the contrary. Mwaba refuted an assertion that the levy was imposed as an infant industry protection tool. “It was introduced to protect Botswana’s milling industry from dumping by, especially, the South African milling industry. The South Africans were dumping excess wheat here at below cost prices,” he stated, emphasizing that if the local milling industry was not protected, it would lead to massive loss of jobs.
“The South African milling industry produces three million tonnes of wheat a year, while we produce only 100 000 tonnes a year. They produce in three weeks what we produce in a year, so you can imagine what will happen if they were allowed to sell here, they would swallow us,” said Mwaba.
Quizzed on the poor quality of wheat flour the local milling industry is said to sell to bakeries and other consumers, Mwaba said it was a standard milling issue. “When we get poor quality wheat, it may affect the quality of flour. That’s why we have a return policy. When a client is not happy with the quality of flour, we’re happy to replace the consignment,” he said.

On the issue of underweight bags, Mwaba said though they try their best to deliver the exact weight, mistakes happen. “Sometimes we deliver underweight bags, and sometimes we deliver bags that weigh over 50kg. When the bags are overweight, we never hear complaints from the bakers,” he quipped.
This publication put it to Mwaba that bakers complained of “exhorbitant” prices charged by the millers, that when they buy wheat flour from South Africa, the price which includes both transport and the wheat levy still beats theirs, he responded; “You see my brother, that’s what dumping is all about. The South Africans sell at below cost prices, and how’re we supposed to compete,” he stated. Mwaba added that their prices are competitive and studies have been done to demonstrate that.

This publication pointed Mwaba to a study conducted by E-Consult, the results of which were carried in the E-consult quarterly economic review for Q1 of 2014, where it called the levies “hidden” taxes which raised the cost of doing business and are generally frowned upon from a public finance perspective. “Since the levies do not go through the normal budgetary process and parliamentary legislative scrutiny, they compromise tax efficiency and transparency,” opined E-Consult, adding that unlike normal budgetary items, expenditures do not have to be approved by Parliament. E-Consult recommended that the levies be abolished or phased out rapidly.

Responding, Mwaba said the study was commissioned by stakeholders to investigate Non-Tariff Barriers (NTB). He said it, however, did not cover the entire scope of the assignment because some of the stakeholders were not interviewed. “As a result, the findings of that study were not accepted by the stakeholders. Another study was commissioned through the Botswana Export Manufacturers Association (BEMA). A consultant, Isaac Ndungo carried out the study, it was more comprehensive and covered a wider scope which included a review of prices of the South African market.  That study recommended that the wheat levy be maintained,” he said.

BB hosted a stakeholder seminar two weeks ago where findings and recommendations of a study conducted to assess the impact of the proliferation of levies on the business community were presented. Consultants who were engaged by BB to carry out the study stated in their presentation that the levy negatively affected all industries which are linked to the wheat and flour sector such as bakeries, dairy and the beverage sector.
“The levy does not only affect producers but also hurts households’ welfare through price escalations,” argued the consultants.
The consultants recommended that “Government should discontinue the levy altogether, or consider rapidly phasing it out.”
In a draft report to the BB, seen by this publication, the consultants mentioned as reasons for the recommendation “the negative impact on the wheat related sectors and the potential to create anti-competitive behavior by the two protected firms – Bokomo and Bolux.”

Gosego Lekgowe, an attorney, has posited that the wheat levy “contravenes Botswana’s commitment to the Southern African Customs Union (SACU) Agreement.” In a paper titled Botswana’s Wheat Levy: Is it in violation of the SACU Agreement?, Lekgowe has argued; “From a reading of Article 26, Botswana has a right to impose the import restrictions to protect an infant industry defined as an industry which is 8 years or younger. Such protection is only a temporary measure, and the protection must last only for 8 years. Botswana cannot justify the Wheat Levy under Article 26 for the following reasons; (1) the milling industry has been in existence for more than 8 years, it cannot be described as an infant industry, (2) even then, the levy has been in existence for more than 8 years.”

To the local millers, Lekgowe has said that “they may as well say they fear stiff foreign competition from South African companies.”
Further, Lekgowe has asserted that Botswana cannot justify the Wheat Levy under any of the provisions of the SACU Agreement. “In fact, the levy is directly in conflict with Article 25(3) and Article 26 of the SACU Agreement,” he concluded.