Domestic chicken producers and importers are sparring over tariff increases, which could see hikes of up to 82% on duties.
Ultimately, those cost increases will filter down to the consumer.
Now the Association of Meat Importers and Exporters (Amie) has released the findings of a comprehensive study it commissioned into the local industry, which shines new light on the impact of trade protection, domestic production and the critical role of these chicken imports. The research, commissioned from FTI Consulting, an international business advisory, indicates that implementing tariff increases on chicken imports from non-EU and Southern African Development Community countries could lead to shortages in the local market, which the domestic producers are unlikely to ever be able to meet.
It found despite already high levels of trade protection, domestic producers have not increased production to meet growing demand. There’s also no evidence that further protection will allow them to achieve this objective.
Background
The SA Poultry Association (Sapa), which represents the country’s large poultry producers including Astral and RCL Foods, has applied to the International Trade Administration Commission (Itac) to impose the maximum allowable import duties on chicken products, in addition to a “safeguard levy” of 35.5% which was granted to the industry against EU chicken last September.
The World Trade Organisation (WTO) allows tariffs up to 82% to level out the playing field between trading partners from unequal production environments, due to subsidies. Sapa says without these levies, the local market will have no protection from Brazil’s and other countries’ predatory trade, “at the cost of tens of thousands of South African workers in the chicken and related industries”.
It also says uncontrolled dumping over has had a devastating effect on emerging farmers and many small farmers have gone out of business, because their potential markets have been flooded by dumped chicken.
In April, it noted that imports, of which 61% come from Brazil, “currently outnumber the output of even the biggest South African producer. The import tariffs that are in place have not slowed this down in the slightest”.
Opposing view
Amie, though, says if imports’ volumes are reduced, it will result in higher prices and an estimated loss in GDP of R1.1billion in the first year. The association says these costs to the economy can’t be justified based on protecting the domestic poultry industry.
“The solution is to adopt a freer market approach that allows imports to supplement supply where domestic production falls short,” says Paul Matthew, chief executive of Amie.
“The only winners will be a handful of major producers already benefiting from lower feed prices and production costs in a highly efficient industry. How can a massive tariff increase be justified when market leaders, who also own significant parts of the feed supply chain, are reporting record profits of R1.5bn a year?”
Amie’s study also showed that local jobs have already been lost, due to mechanisation, maturity and improved efficiencies. And that the local producers simply cannot keep up with demand, which is why imports serve a critical role.
“The constant claim that chicken is being ‘dumped’ in South Africa is also misleading as it creates an impression of inferior goods being sold locally. Imported chicken is subject to many rigorous quality and veterinary examinations that ensure quality.”
The likelihood of a massive tariff increase contributing to job creation is exaggerated, he believes, saying “punitive protectionism will lead to about 15% of local importers closing their doors. Job losses will be real. Other importers will find alternate suppliers, but the ultimate losers will be consumers, who will pay more and have less purchasing options available.”
And the SA National Consumer Union’s (Sancu) vice-chairperson, Clif Johnston, has noted before that local producers are only able to supply 70% of the demand for chicken - the rest needs to be imported. He believes imports keep prices in check.
“Chicken is the cheapest source of protein. For many consumers it’s their sole source of protein, which they can only afford to buy occasionally. Any price increases in chicken result in extreme hardship for consumers.”
Sapa, though, has hit back at the importers’ body, saying: “Amie’s decision to commission a study now, when the decision on the tariff is pending, is questionable, considering that the process has run over almost a year during which time they had all the time to make submissions along with all other stakeholders, including (Sancu, the Food and Allied Workers Union and the Emerging Black Importers and Exporters of SA). There’s nothing new in this so-called study; the minister and Itac have all that information already and would have been using the information supplied by every relevant stakeholder, including Amie, to reach a decision on the tariff.
“It must be remembered that tariffs are a mechanism put into place by the WTO against unfair trade, and it’s then up to the Department of Trade and Industry to determine the level of unfair trade.”
Matthew disagrees: “This study was part of our five-year strategy programme to understand the local industry and imports. We had made the call quite a while ago to understand the landscape better, to discuss with Sapa.”
No threat
He says imports don’t threaten the local market and it’s not dumping: most of the chicken at stake is frozen bone-in and boneless chicken.
“They speak about a huge amount of tonnage coming in, but they’re including mechanically deboned meat (MDM), which the local industry does not produce, into that tally. MDM goes into polony and other products.”
He says MDM and chicken carcasses, which are used for stock and soup, are lumped into the claimed tonnage, “for sensation”. “The big guys in Sapa want to ensure their market share and returns for investors.”
Matthew says every meat product that comes into the country goes through a strict veterinary system, where it’s inspected, the Department of Agriculture, Forestry and Fisheries tests it and then releases it.
“It’s a very controlled system. Food safety is high on our agenda. Who is checking local producers? We’re saying let’s level the playing field. Veterinary for food standards are very high because it’s consumed by humans. Exporters often complain about busy ports - that’s because they’re so busy (doing the checks).”
Recommendation
The report suggests that for local producers to increase profit, they need to change the way they produce and package their products: “One option is for producers to direct more sales to single-portion cuts. IQF (individually quick-frozen) makes up more than 50% of the current sales mix, leading to strong competition in this market.
“By directing more sales to single portion or value-added cuts, producers may obtain a competitive advantage.
“The demand for SA broiler meat in international markets could also be increased through changes to production practices, such as producing larger cuts or unbrined meat for the export market, especially to regions where SA has duty-free market access.”
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.