This article was originally published in FairPlay’s 2023 annual report. Please note that any opinions expressed are those of the author, and do not necessarily reflect the opinions of FairPlay.
By Donald MacKay, founder and CEO of XA Global Trade Advisors.
Exporting is much harder than selling locally, where you know the market and you understand your consumer.
The chicken industry benefits from high duties, shielding it from global competition (I am not
referring to the anti-dumping duties here, which deal with a specific issue, but rather to the 62% duties on bone-in chicken, and the 82% on whole birds). This shielding effect lowers the need to focus on international competitiveness. This may not manifest as a deliberate set of actions, but the economic incentives created by higher duties will drive this behaviour.
Very few protected sectors tend to export simply because the high duties are a measure of how much more competitive the exporting countries are compared to the local manufacturers.
However, very few successful economies do not have thriving export sectors. An important factor in export success is companies with sufficient size to benefit from economies of scale.
South Africa’s chicken industry has many examples of this important ingredient.
According to SARS, for the period from October 2022 to September 2023, we exported deboned chicken breasts at a weighted average price of R4 826 per ton, compared to
a weighted average price of R3 669 per ton for a combination of drumsticks, thighs, and leg quarters for the same period.
That’s a premium of 24% with these exports only going to our neighbouring countries.
Should we target higher value markets such as the EU or the Middle East, the premium should be considerably larger.
So, we sell chicken breasts in the same IQF bag as we sell chicken thighs, losing the increased value of the breast if we sold it into markets which prefer breast meat.
Because of the strict sanitary laws around the world, chicken producers depend on the
Department of Agriculture, Land Reform and Rural Development (DALRRD) to assist in getting new markets opened. The lack of vets and the generally tardy pace at which DALRRD moves has a direct impact on the industry developing into a global player.
The poultry master plan attempts to deal with this, but it appears this is not achieving that goal anywhere near as quickly as it should be.
An export first focus builds competitiveness and resilience because in the world outside of SACU, without its duty protection, the companies who thrive are those who get the competitiveness formula right.
This is not to say the domestic market is unimportant, but when a chicken exporter is able to export successfully, it will automatically be more competitive in the local market too, both against imports and other non-exporting local competitors.
Perhaps surprisingly, I would never advocate for the complete removal of import duties on chicken. The local industry matters and is faced with the nightmare challenges of electricity and water shortages. However, on the other side of that equation is a consumer whose challenges dwarf even those of the local manufacturers. An export focused chicken industry will be able to assist those vulnerable consumers best by being more competitive and being able to pass those competitive savings along.
There is little room and likely very little appetite politically to increase duties further. The size of the South African pie is thus limited to whatever can be won back from importers and whatever small growth there is in local consumption per person.
On the other hand, South Africa is well poised to serve a lot more of Africa than the handful of countries we currently sell to.
This, surely, is an opportunity not be missed?
