The consumer price effects of trade policy restrictions in South Africa: A study of chicken, frozen chips and pasta
Lawrence EdwardsUniversity of Cape Town
From 2010, the South African government adopted a strategic approach to trade policy, whereby tariff adjustments are considered on a case-by-case basis. In this paper, we study the implications for consumer prices of three consumer goods – frozen chicken, frozen chips and pasta – that have experienced rising protection in the form of general, anti-dumping and safeguard duties. We find that tariffs and other import duties have a powerful impact on import volumes and, in the case of frozen chicken, on consumer prices. The pass-through of tariffs to landed import prices is complete, but the aggregate impact on landed import prices and volumes is attenuated by the diversion of imports towards preferential trade partners, most notably, the European Union. Using disaggregated product price data at the outlet level, we estimate that tariff increases have contributed to rising domestic consumer prices, but the pass-through depends on the how the different tariff measures reinforce each other, particular by restricting imports from preferential trade partners. The estimated impact of rising trade protection is calculated to be equivalent to a reduction in welfare of 2.1% of food expenditure for households in the lowest consumption decile and 1.1% for households in the top consumption decile. Our results raise questions regarding the effectiveness of strategic trade policy when countries are participants in preferential trade areas, and illustrate how aggregate price and welfare impacts are influenced by the sequencing, targeting and ultimate combination of trade measures.
(Joint with Kamutando, Ga., Stern, M.b, Venter, F.b, Mambara, S.a, and Ismail, Z.b)