15 Aug South Africa has a protein security problem and VAT exempting more foods won’t solve malnutrition

More than a quarter of our children have a deep and chronic lack of protein that undermines their potential and is a ball-and-chain around the ankles of economic productivity and long-term growth.

At the opening of Parliament, President Cyril Ramaphosa announced government’s intention to expand the list of food items exempt from value-added tax (VAT), to provide greater protection and support to the most vulnerable in society. But if that is the aim, then the means of achieving it needs to be reconsidered. What is required is deeper discounting, not wider – to substantially reduce the price of a more limited basket of high-protein staple foods that, with a couple of exceptions, are already VAT-exempt.

This conclusion is consistent with the National Treasury’s 2018 report to the Minister of Finance that, apart from a few additional foodstuffs, it would be better to direct more money to low-income households through expenditure-side interventions than through further VAT exemptions. One of the foodstuffs it did propose for new exemption was individually frozen chicken pieces which are the main source of meat-protein for lower-income households. From a nutritional point of view that makes a lot of sense, and we would add peanut butter to the list because of its high protein content. Beyond those items, the revenue foregone by National Treasury would be better directed to steeper price reductions on a sub-set of highly nutritious basic foods.

Children need energy, protein and vitamins and minerals to grow. Carbohydrates are the body’s main source of energy, while proteins can also be converted into energy. Conversely, excess carbohydrates can be converted into some amino acids – the building blocks of proteins – but they cannot be changed into essential amino acids which can only be obtained from the food we eat. Vitamins and minerals (also called micronutrients) are present in a wide range of foods, especially those that are unprocessed. It is the relative unavailability of energy, proteins and micronutrients that determines the clinical picture of malnutrition.

Malnutrition in children presents in three ways. The first is acute, where children are underweight or, in the most serious cases, dangerously ill with severe acute malnutrition (SAM).  In South Africa, about 15 000 children are hospitalised with SAM each year and 1 000 die from it. Typically, these children fail to get enough of all forms of food – carbohydrates, oils, proteins and micronutrients. The second is the opposite side of the spectrum, where children are overweight and obese, sometimes because they are genetically predisposed but often because they overeat. Children from poorer families may gain excessive weight from eating too much starch and sugars even though they are not getting enough protein. The latest National Food and Nutrition Security Survey found that over a fifth (22.6%) of young children are overweight. The third form of malnutrition is chronic, which manifests as stunting (short-for-age). This means that children are not getting enough protein to grow their bodies and brains, even if they are getting enough energy. Studies show that stunted children have lower levels of circulating essential amino acids.

This is our biggest household food security problem, that families cannot afford enough protein-rich foods. If we must reduce our nation’s nutritional status to just one diagnosis, this is it: South Africa has a protein security problem. Approximately 17.5% of households report severe food insecurity – going to bed hungry or running out of food before the end of the month. However, the proportion of children who don’t even get enough energy to sustain their weight is much lower, with 7.7% of children under five years of age underweight and 5.3% wasted (low weight-for-height). On the other hand, 28.8% of children are stunted. Simply put, over a quarter of our children have a deep and chronic lack of protein, which undermines their potential and is a ball-and-chain around the ankles of economic productivity and long-term growth.

Some may argue that reducing household food security to issues of protein deficiency is an oversimplification, but addressing protein deficiency through affordable foods like eggs, speckled beans and full-cream milk will also improve the intake of micronutrients. The other major cause of stunting is chronic inflammation of the gut which requires clean water and sanitation, and improved food hygiene. But we must not become so paralysed by the complexity of nutrition that we end up doing nothing to improve the availability of nutritious foods. The pointed question addressed here is whether further VAT exemption is the best fiscal instrument to protect families from the high price of food. The answer is no. Rather, we must make high-protein staple foods more available and affordable.

To do this, we must revive the milk supplementation programme for children under two who fail to thrive, to get their growth back on track and prevent progression to severe acute malnutrition. Government and industry must also work together to double-discount a basket of 10 protein-rich staple foods sold in supermarkets and spaza shops, a proposal championed by the DG Murray Trust (DGMT) and zero-stunting campaign Grow Great. A retail subsidy, matched by the food industry’s agreement to forego profits on the house brands of these products, could reduce the price by 20-25% above and beyond the 15% saved through VAT exemption. While there will be some leakage to wealthier consumers – especially when house brand eggs are double-discounted – most of the selected foods in the proposed basket are consumed mainly in lower-income households. To ensure that the subsidy is passed onto the consumer and that retailers honour their promise of at-cost sales of the subsidised products, prices would need to be constantly compared with other non-subsidised brands. This scheme would also require public advertising to promote the subsidised products and help reshape food choices.

Fully implemented, the annual cost to National Treasury will be between R3 billion and R5 billion, not dissimilar to the revenue loss to the fiscus that would need to be factored in if VAT exemption were extended. The difference would be that manufacturers and retailers would have come to the table too, foregoing their profits on the selected items, and making the government’s contribution go twice as far.

Business Unity South Africa (BUSA) has written to NEDLAC stating that it is not willing to even entertain the notion of this proposal, because their members are under such financial strain. It’s a questionable excuse. As President Ramaphosa said at the opening of Parliament, many companies are making large profits while prices continue to rise. Anyway, that’s not really the issue. We should be looking through the ups and downs of company profits towards a sustainable path for economic growth and development – and that can’t happen without household food security. BUSA should be leading the charge to eliminate nutritional stunting instead of trying to shut down critical discussions. Fortunately, some of BUSA’s members are more forward-looking and one has indicated its willingness to be first in when the government puts money on the table.

The ball is now in the government’s court. If National Treasury is persuaded by the political moment to allocate funding to increase food affordability, it should double its money by leveraging the commitment of the private sector. It should direct its funding towards a solution that will have the greatest impact on both child nutrition today and economic growth in the future.

David Harrison is the CEO of the DG Murray Trust (DGMT).