A decades long surge of predatory imports
FairPlay has fought against dumping and illegal trade since 2016, when it was founded for that purpose. Our first partnership was with South Africa’s poultry industry, which has faced high volumes of chicken imports for nearly two decades, much of it dumped below the cost of production.
The assault has weakened local producers, cost thousands of jobs, limited expansion and economic activity in poor rural areas and threatened food security, particularly in vulnerable communities.
Global chicken producers, led by the European Union (EU) and then Brazil became a major threat to the South African chicken industry, and by extension the grain industry which supplies huge volumes of poultry feed.
They are a threat to the Southern African region, where the poultry industry is a major employer and a significant contributor to local economies and food security.
The fact that import volumes have been declining since they peaked in 2018 does not mean these threats have gone away. Imports remain substantial (R5.35 billion in 2021 according to official statistics) and for the past six years have averaged more than R6 billion annually.
The extent of the threat is shown in import statistics, company reports, the Poultry Sector Master Plan and applications for anti-dumping duties against producer countries.
The 2019 master plan said the local industry was in distress, with local production stagnating as imports rose by 400% over the previous 20 years. It said that imports of chicken meat alone had risen by 73% over the previous five years.
Although import volumes have dropped since then, dumping continues. The poultry industry’s successful application for anti-dumping duties against Brazil and four European Union countries said that, for the three years to June 2020, more than half of the 700 00 tonnes of bone-in chicken from these countries was dumped.
In 2020 and 2021 Astral Foods, South Africa’s largest poultry operation, estimated that chicken imports had a greater market share than any local producer.
Brazil is now the threat
Because of avian influenza (bird flu) outbreaks in Europe, Brazil has overtaken the European Union (EU) as the major source of chicken imports into South Africa.
The EU led the assault on the South African poultry industry up to 2016, dumping increasing volumes of frozen chicken portions on the market, and importing them duty-free under the Economic Partnership Agreement signed in 2000.
Anti-dumping and safeguard duties had some effect, but EU imports comprised 63% of chicken imports in 2016.
It was bird flu that slowed and then stopped EU chicken imports into South Africa, and Brazil quickly filled the gap. While import totals are declining, the supply from Brazil has risen steadily, accounting for 82% of all chicken imports in July 2022.
Brazilian chicken is subject to the general tariffs imposed by South Africa. These were increased in 2020 to 62% for frozen bone-in portions and to 42% for frozen boneless portions. In addition, anti-dumping duties on Brazilian bone-in portions have been approved but suspended for 12 months from August 2022.
FairPlay has called the suspension an invitation to increase dumping, which will cause more harm and job losses. It has urged the South African government to impose the anti-dumping duties as soon as possible.
What these numbers mean
Chicken imports to South Africa reached a record high in 2018. Imports of bone-in portions alone doubled from 145 000 tonnes in 2013 to 287 000 tonnes in 2018 – a 23% increase on the previous year.
The share of imports in domestic consumption is projected to reach 21% by 2030, from an average of 24% in the 2018-2020 base period. While substantially slower than in the past and not reaching the peaks of 2018, imports are still projected to increase over the coming decade.
Source: Baseline Agricultural Outlook 2021 – 2030, published by the Bureau for Agricultural Policy (BFAP).
Source: The South African Poultry Association tariff code report, based on SARS-verified trade statistics. The term ‘poultry’ – in the graph above – refers to chicken, turkey, ducks, geese and guinea fowl.
What exactly is dumping?
Dumping is an unfair trade practice designed to capture a market and ultimately gain pricing power.
A free market is eminently desirable, something every nation ought to strive for. Economists who quantify the degree of freedom in the various global markets have largely found a positive relationship between these free markets and the rates of economic well-being.
A free market promotes efficiencies for participants, while the healthy competition spurs lower prices for consumers. Unfortunately, it is not uncommon for market players to participate in anti-competitive behaviours; behaviour that reduces or completely inhibits competition. Among the more pernicious of these behaviours is market conduct that amounts to an abuse of dominance, which encompasses a host of unfair, unethical trade practices aimed at bullying the other participants.
The abuse of a dominant position occurs when a dominant market participant has the motive to capture the market, often to gain pricing power. When this dominant player has pricing power, it forces all the other market participants to follow their lead.
One such an example is dumping; an unfair trade practice that is designed to capture a market in which the dominant player will face little to no competition, and consequently, no countervailing power. These market participants price at a steep loss, way below their cost, and often lower than more efficient competitors, to ultimately gain pricing power. When a market participant abuses their dominance in such a way, they are engaging in predatory trade.
You can only really engage in predatory trade if you are dominant. A dominant player doesn’t even have to have the biggest market share, just the capability to set the agenda for the market, forcing other participants to follow their lead, or refrain from participating. But markets have dominant players all the time, that in and of itself is not illegal, unethical or predatory – competition law states that if you are dominant, you are not allowed to abuse that dominance at the expense of other market participants.
All countries have competition law, as these laws are necessary to regulate the market in order for the market to operate efficiently for the benefit of its citizens. However, these domestic competition laws cannot be applied extra-territorially, which has led to Brazil, the EU and the USA, who are dominant producers globally, to abuse their dominance in the South African market – they are pricing in such a way as to capture the market to ultimately gain pricing power, setting the agenda (price) and driving out local competition, hurting local industry today, and the consumer tomorrow.
When that happens South African consumers will pay the Rand/Dollar exchange price for poultry. While entrepreneurs are rewarded for efficiency and innovation, there’s no way they can win against a market power that abuses their dominance in such a way.
The vast jurisprudence on competition law illustrates that the conduct of dominant market participants is very often anti-competitive, designed to undermine the discipline that a healthy market imposes, and consequently unfair. When that unfairness is designed to drive out the competition, it is predatory trade.
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