Costs and Benefits of Higher Tariffs on Wheat Imports to South Africa - A General Equilibrium Analysis

Low international wheat prices caused by tariffs and subsidies in developed countries have been blamed for causing financial difficulty to local farmers. While the indignation at these unfair trade practices may be valid, it does not follow that protection of the local industry is necessarily the best course of action. This paper uses a static general equilibrium model to describe and quantify the effects of increased tariffs (by up to 25 percentage points) on the local wheat industry, other affected industries, particularly downstream industries, and the economy at large. Additionally, the effects on factors, households and the government are also analysed. The results show that the benefits to the wheat industry are highly concentrated and smaller than the loss of income caused in other sectors. Welfare is negatively affected, especially for low-income households, for whom the effects are exacerbated by food prices becoming somewhat more expensive relative to other prices.