Pros and cons of chicken imports are under debate

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From today, anti-dumping duties will kick in on frozen bone-in chicken imported from Germany, the Netherlands and the UK after the SA Poultry Association successfully brought an application to the International Trade Administration Commission.

At 73 percent duties will be highest against Germany, while the duties imposed on the Netherlands and the UK will be 22.8 percent and 22 percent, respectively. The total exports of frozen bone-in chicken to South Africa from these three countries amounted to 101 581 tons in 2012.

The newly imposed duties will increase the price of chicken for local consumers.

These are not normal import tariffs as they have been specifically applied due to dumping behaviour. Dumping occurs when a country exports at very low prices, often below cost, due to an excess supply of the product. It is an act of recuperating costs rather than making a profit. The result is that local producers in the importing nation cannot compete with the unnaturally low prices and are often forced to shut down.

In competitive trade, each country specialises in what it does best and trade happens when foreign producers can supply at a lower cost than local producers.

Most countries are tied by World Trade Organisation agreements that restrict unfair trade behaviour and protectionist policies such as excessive government subsidies to local industry and high import tariffs on foreign supply. In addition to the trade organisation’s rules, countries are tied by bilateral pacts with their trading partners.

According to a trade, development and co-operation agreement, fully effective from 2004, South Africa is not allowed to impose import duties on exports from the EU. However, the recently imposed duties are not considered to be protectionist measures as they are removing the incentive for unfair behaviour of foreign suppliers rather than creating an unfair advantage to South African producers.

South Africa has had anti-dumping duties imposed on US birds for 10 years, and last year it raised fees on Brazil’s chickens.

The Association of Meat Importers and Exporters has voiced its opposition, saying that the duties will simply raise chicken prices and the damage will be carried by local consumers. This argument does hold some weight, but only in the short run.

While dumping gives an unfair advantage to foreign exporters, the benefit of such cheap imports is felt by the average local consumer as they can now access goods at a lower price than would be possible from South African suppliers. But here’s the danger point: these lower costs are not because foreign suppliers produce more efficiently or competitively than their South African counterparts, but they are due to a blip in the market that will be corrected when demand and supply once again align.

In the short to medium term dumping brings cost benefits to consumers, but at the same time it forces much of the local production to shut down. When the foreign market corrects and there is not excess supply left to dump, the cost benefits will fall away but local production will not immediately bounce back. So South Africa is left more reliant on imports and consumers now face even higher prices than before the dumping due to the limited local supply.

In the end everybody loses.

The benefits from dumping are short lived but the damage can scuttle an industry. The anti-dumping duties are intended to deter this short-term behaviour and will be effective only until the start of next year.

Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter: @PierreHeistein.


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