News

SA must not chicken out of fighting unfair poultry trade practices

By Mike Schussler. The recently signed master plan is a positive first step towards protecting the local industry.


The recent signing of the poultry industry master plan by trade, industry & competition minister Ebrahim Patel together with representatives of the poultry industry, importers, trade unions and other stakeholders is a critical initiative that will help achieve coherence and stability for this strategic industry. However, the real battle for survival will be decided by how SA gets to grips with the multiple and complex challenges of international trade.


Direct and indirect government support, an industry that operates at the highest levels of efficiency, robust implementation of the master plan with its promised curb on imports, and a fully resourced and cohesive export plan are all critical factors in stabilising the industry and positioning it for growth in one of the most competitive markets in the world.


Chicken is the largest meat-protein industry in the country, directly employing 47,000 people. Via linkages in the supply chain, from maize and soya beans to transport, packaging and processing, it is responsible for about 130,000 SA jobs. It is of vital strategic interest to this country. Yet, despite being the world’s fourth-cheapest producer, as shown by the latest data from 2018 and 2019, SA imports more chicken than Germany or France, both of which produce at far higher cost.


The 20 largest importing countries all either have no chicken industry to speak of or produce far more expensively than SA. For example, SA produces whole chickens at least 19% cheaper than any of the top 10 poultry-importing countries. So how does a country that is an efficient poultry producer get into such a mess that, despite a weak currency and a distance barrier, it has become the world’s fifth-largest poultry importer?


It starts with the fact that agricultural trade is the least free trade in the world. Many countries offer support to their farmers and food-processing industries for reasons that range from food security to the political clout rural communities still have in many older democracies.


Anyone competing against products that enjoy direct and indirect government support of 20% or more is at a huge disadvantage. Subsidised producers can ask less and still make higher profits. SA producers, on the other hand, receive little financial support. They simply have to work harder to increase efficiency and reduce production costs.


Second, trade negotiations often fail due to strong farm lobbies that do not like competition. That means many of the richest countries, and a few emerging markets such as Russia, find ways to keep agricultural products out by citing, for instance, food safety concerns.


All too often, these concerns have more to do with domestic agendas than actual health issues. Citrus black spot, which the EU uses to keep SA citrus out of their markets, is a case in point. While import restriction measures such as these may not always be permanent, their effect on exporters is real as it leaves them with fewer export destinations.


So, when a big importer like China turns away Brazilian chicken imports, those millions of tons of chicken meat have to go somewhere. Brazil will look to sell its chicken elsewhere, because practically any money it gets will be better than nothing, which is the alternative if they don’t sell the meat. SA then becomes an easy target to dump chicken priced below cost of production.


Third, there are parts of products that richer consumers want and where the tariff makes less of a difference. Quotas are often filled with good-quality or higher-priced parts of that product. The above is also the case where big home markets absorb most of the choice parts of the product, allowing producers to sell the unpopular parts cheaply elsewhere. So when huge consumer markets such as the EU or US buy chicken breast meat at a premium, their local producers often ask little for, say, the drumstick, which they virtually regard as waste.


Honest, efficient producers in smaller markets are hampered by these three market distortions as they struggle to make money from products that cannot get government support due to more immediate and developmentally focused pressures on the fiscus. Nor do these producers get market access, as that is controlled by a plethora of restrictions too numerous to mention here. These hard-working producers find it almost impossible to achieve economies of scale when they are excluded from access to the large consumer markets.


As part of the new poultry-industry master plan, the SA poultry and grain sectors have now come together to increase production of both chickens and grains and decrease feed prices for producers to further increase the efficiency of the SA poultry sector. Poultry producers also plan to work with retailers to package cheaper brown meat to reduce prices to consumers.


The poultry sector has further committed to invest close to R2bn in new production facilities and employment. This should create about 3,500 jobs directly and two and half times that in total throughout the supply chain.


I believe this is the start of introducing a counterbalance for SA in the fight to protect jobs and to keep prices of the country’s most-consumed protein low. However, before the industry celebrates, one must keep in mind that international trade restrictions will not disappear. Poultry is the largest animal-agri sector in SA. If it fails, the ripple effect on the economy will be large. Not only will the job destruction be significant but the current account balance will weaken by about 0.5% of GDP.


Other indicators, from the currency to inflation and particularly the price of protein, will also be affected. Once a country has no more local poultry production due to dumping, as has already happened in some African countries, the exporting countries will revert to charging actual cost of production plus transport of the product — countries that are small poultry producers with high import volumes generally have far higher retail prices.


SA agreed in 1993 to participate in the Uruguay Round of multilateral trade negotiations, and the following year signed the Marrakesh Agreement of the General Agreement on Tariffs and Trade, which became the World Trade Organisation. SA was naive to do so, because it hurt employment of the vulnerable by opening up our food markets while reducing subsidies. Agriculture was left high and dry and the results are evident in one of the highest unemployment rates in the world.


Food-production industries can employ more people at lower cost than the vehicle sector, and provide employment to vulnerable people in rural areas. They can also help keep price adjustments low and support the trade balance. South Africans must work together to avert the negative effects of job losses, growth inflation and the like. This poultry master plan offers hope as it relies mostly on local improvements for sustainability.


SA must not continue to be naive: every country in the world fights hard for markets, particularly in agriculture. Our government has to formulate more master plans and more ways to counter unfair and predatory trade practices such as dumping. From an economic point of view, that is the only way forward.


Mike Schussler is chief economist at economists.co.za and a FairPlay expert panel member.


Comments are closed.







Generic selectors

Exact matches only


Search in title


Search in content



Search in posts


Search in pages



Filter by Categories

All News


Chicken Industry


Facts


Media Releases


Monthly Reports


News


Podcast


Retailers


Sugar Industry


Uncategorized


VAT FREE Chicken