A Trade and Poverty Case Study: The Effects of Trade Liberalization on the Wheat-Flour-Bread Value Chain in South Africa

This paper examines the impact of trade liberalization and deregulation on the wheat-flour-bread value chain and specifically the impact on the industry and poverty via three channels namely: price transmission; enterprises (employment and profits); and the governments fiscal position. Protection is currently based on a small 2% ad valorem tariff. The industry is very sensitive to exchange rates and international prices given that South Africa is a net importer of wheat. The impact has been mixed for producers (commercial and emerging). While substantial employment losses occurred in the primary wheat producing areas, gains were experienced elsewhere in the value chain. Prices for both wheat and bread have been decreasing in real terms. This is significant as bread forms an increasingly important component in the poor consumers basket. Price transmission has generally been efficient and consumers have benefited from the liberalization process in the current environment of subsidized world prices and an appreciating Rand. In terms of lessons learnt it is argued that similar benefits to consumers could have been achieved had the deregulation process been implemented at a more gradual pace with more attention being paid to providing safety nets and mechanism to enable the disadvantaged parties to adjust to the new realities.