How tariffs raised pasta and frozen chip prices in South Africa

Import duties are meant to protect local factories. A new study from South Africa shows they can also raise what shoppers pay. Researchers at the University of Cape Town (UCT) found that duties pushed up the shop price of pasta by 9% and of frozen chips by 4.7%.

The study was funded by the South African Reserve Bank, the country's central bank. It was published in the South African Journal of Economics. It looked at trade restrictions between 2010 and 2022.

South Africa is not Nigeria. But the way a border tax travels from a port to a supermarket shelf is the same in both places. This explainer walks through it.

What did the study find?

The researchers looked at two products: pasta and frozen potato chips. The pasta group included macaroni, spaghetti, instant noodles and other pasta products.

• Frozen chips: prices rose by an average of 4.7% after anti-dumping duties were imposed.
• Pasta: prices rose by a combined 9% during the periods when higher ordinary import tariffs and anti-dumping duties were in force.

The study says the frozen chip effect was stronger in big city areas, known as metropolitan areas. The researchers link this to the way retailers and shoppers there are more closely tied to distribution networks.

What is a tariff, and what is an anti-dumping duty?

A tariff is a tax charged at the border on goods coming into a country. It makes the foreign product more expensive for the importer. That gives local producers some room to compete.

The study deals with three kinds of trade measure. Here is what each one means, as the report describes them.

• Import tariffs: a charge added at the border that makes foreign goods more expensive.
• Anti-dumping duties: charges on imports judged to be sold at unfairly low prices. "Dumping" means selling abroad at a price lower than fair value.
• Safeguard measures: temporary protection for local industries facing a surge in imports.

The pasta finding also mentions Most Favoured Nation (MFN) tariffs. These are the standard import duties charged on goods from trading partners, unless a special trade deal sets a different rate.

How did the researchers work this out?

They used nearly 63 000 monthly price records. The prices were collected from 269 shops and outlets across 31 regions, between January 2010 and April 2022. The data came from Statistics South Africa, the national statistics agency.

This matters because the researchers could follow the price of the same product in the same shop over time. They could then see what happened to that price after a new duty began. They also brought in information on import duties, international prices and household spending patterns.

The pasta duties in the study included anti-dumping duties on imports from countries including Egypt, Turkey, Latvia and Lithuania.

How does a duty at the port end up in the shop price?

The source does not lay out every step. But the general chain works like this.

1. The government adds a duty to an imported product.
2. The importer pays that duty at the border, so the product costs more to bring in.
3. The importer may pass some or all of the cost to wholesalers and retailers.
4. Local producers, now facing dearer imports, may also raise their own prices.
5. The shopper sees a higher price at the till.

Each step can soften or sharpen the effect. The study's lead author, Professor Lawrence Edwards, director of UCT's Policy Research in International Services and Manufacturing (PRISM), explained that the pass-through is not automatic. He said: "The findings suggest that import protection does not necessarily translate into higher consumer costs on a one-for-one basis."

In plain words, a 10% duty does not always mean a 10% higher shelf price. He said some of the extra cost can be absorbed by foreign exporters, who may cut their own prices to keep their sales. Retailers' pricing decisions, international commodity prices and distribution costs also shape what shoppers finally pay.

Did households feel it?

The researchers say the hit to households was small. They estimated that the price rises reduced household welfare by 0.03% of total annual food spending.

To see how small that is, take an illustration. This is not a figure from the study. If a household spent R100 000 on food in a year, 0.03% would be R30. That is derived by multiplying R100 000 by 0.0003.

Why so small? The report does not spell it out. RainingMoney's reading: pasta and frozen chips are only a slice of a family's food basket, so even a clear rise in their prices moves the overall food bill very little.

Who felt it most?

Wealthier households. The study found that those in the highest-spending group saw a bigger rise in their food costs than those in the lowest-spending group. They were more likely to buy pasta and frozen chips. They also spent a larger share of their food budgets on them.

This is a useful detail. A tax on a product hits hardest the people who buy the most of it. For these two products, that was better-off households.

What does the study leave out?

Edwards and his colleagues warned that the estimates capture only the direct effects of higher prices. In his words, they "do not account for changes in wages, shifts in household consumption or purchases of the products outside the home, such as at restaurants and fast-food outlets."

Here is what that means in practice.

• Wages: if protection helped keep factory jobs or pay, that benefit is not counted.
• Changes in buying habits: if families switched to cheaper foods when pasta got dearer, that is not counted either.
• Eating out: a fast-food outlet that pays more for frozen chips is not captured.

So the 0.03% figure is a measure of the direct price effect on shoppers. It is not a full tally of who gains and who loses from the duties.

Did the duties help local producers?

This is the harder question, and the source gives only part of the answer. South Africa uses these measures to support industrial policy goals, including protecting local production, sales, profits and jobs. The study looked at what the duties cost shoppers. The article does not report how many jobs or how much output the duties saved.

What it does say is that protection does not guarantee local producers will keep the gains. The report notes that those gains may instead go to intermediaries, or to foreign exporters in countries that keep preferential access to the South African market. A preferential arrangement is a trade deal that gives some countries lower duties than others.

Edwards also warned about a second problem. He said: "Duties targeting particular countries may simply divert imports to alternative suppliers rather than substantially reducing overall dependence on foreign goods." In other words, if you tax pasta from one country, importers may simply buy from another. South Africa would still import the pasta. It would just come from a different place.

What do the researchers want policymakers to do?

Edwards said policymakers should weigh the cost to consumers of any proposed tariff change alongside its benefits for local production and jobs. He said a balanced assessment should ask whether a tariff is likely to build lasting domestic production capacity, and whether the benefits justify the extra costs shoppers carry.

He also called for more attention to competition policy. His words: "We also call for greater attention to competition policy to ensure that the intended beneficiaries capture the gains from protection." Competition policy is the set of rules that stops a few firms from controlling a market and setting prices as they like.

Edwards acknowledged that trade restrictions can help protect local production capacity and make an economy more able to withstand disruptions to global supply. But he warned that higher tariffs alone do not guarantee a more resilient economy.

Why should a Nigerian reader care?

The study is about South Africa, and it says nothing about Nigeria. Nigeria also uses import duties and other trade controls to support local industry. RainingMoney's reading: the lesson that carries over is the mechanism, not the numbers. Protection tends to have two sides. It can help local producers, and it can raise prices for shoppers. Where the gains and costs land depends on how competitive the local market is.

The South African figures should not be applied to Nigerian goods. The report gives no Nigerian data.

What is still not known?

• The report gives no rand prices, so we cannot say how many rand a packet of pasta or a bag of chips went up by.
• The split of the 9% pasta rise between ordinary tariffs and anti-dumping duties is not given.
• The report does not say how many jobs or how much output the duties protected.
• We have not seen the full journal paper. This explainer relies on the published report of the study.

What is the bottom line?

Trade protection has a price, and it shows up at the till. In this South African case, the price was real but modest for households: a 9% rise for pasta, 4.7% for frozen chips, and a 0.03% dent in annual food spending. The bigger question the researchers raise is whether the people the duties were meant to help actually got the benefit.