Response to proposal for a temporary rebate on tariffs and anti-dumping duties applied to imported chicken.
Chicken imports can be negotiated without destroying the local poultry industry.
Summary
Rebating (in effect cancelling or nullifying) import tariffs and anti-dumping duties is the wrong answer to the problem of a shortage of local chicken supplies due to avian influenza outbreaks.
It is a disastrous proposal. A renewed and unrestricted flood of dumped chicken imports would devastate the local poultry industry. It would further enrich chicken importers and it will ultimately leave consumers worse off.
Temporary does not mean brief. The rebates could be in effect for a year or more. That would drive local poultry producers out of business, from large-scale operations to thousands of small-scale farmers.
It would probably also signal the end of the poultry sector master plan, on which the government and poultry producers have been working for four years now and which has resulted in more than R1.5 billion invested in local capacity expansion.
Chicken imports should complement local supply, not threaten it. This can be achieved through a far better solution than rebates.
The sensible and workable solution would be to use the poultry master plan to convene a top-level meeting of government, poultry producers and chicken importers.
Estimate the shortage in local supply likely to be caused by bird flu in the months ahead. Agree that chicken imports will rise to meet that gap and ensure a steady supply of chicken to the local market. Importers would have to undertake not to exceed the targets.
The targets could be revised every few months as bird flu outbreaks increase or decrease.
Consumers would benefit, importers would make increased profits from higher import volumes and the local poultry industry would be able to sell the reduced number of chickens that they are able to produce.
Calculate the gap, and match it with imports. That’s the win-win solution.
What’s wrong with rebates
The SA Poultry Association has rightly said that cancelling, even on a temporary basis, all import tariffs and anti-dumping duties would be “the last straw” for the local poultry industry. It’s just the wrong way to go.
The rapid spread of bird flu has added to huge losses poultry companies are making because of load shedding, high input costs and failing infrastructure. Adding to those woes by taking away their protection against dumped chicken imports is going to put many of them out of business. Thousands will be thrown out of work in poor rural areas, increasing the already high levels of poverty and starvation.
Removing those tariffs and duties is a licence to dump. Import volumes will rocket because there’s no sanction for dumping, and there would be no protection for local producers.
Pricing power
There’s another threat to consumers, and that’s the collapse of the local poultry industry. That would give pricing power to foreign producers and local importers, who could then charge whatever they liked for chicken. When that happens, prices go up.
South African poultry producers have always kept chicken prices as low as possible, because it is the most popular and most affordable meat protein. Chicken accounts for 66% of all meat consumed in South Africa.
If we want prices to stay low, we must keep our local chicken producers in business.
Anti-dumping protection
South Africa currently has anti-dumping duties in place against nine countries. These are the USA since 2000, Germany, Britain and the Netherlands since 2015 and the latest ones imposed in August on Brazil and four EU countries – Denmark, Ireland, Poland and Spain.
The duties were imposed precisely because those countries were dumping chicken here at unfairly low prices, harming the local industry and costing local jobs.
We have one of the world’s most efficient poultry industries – we produce chickens cheaper than all EU countries – but nobody can compete with dumping. Our industry certainly cannot compete with a renewed flood of dumped chicken imports.
Remove protection against dumping and you can say goodbye to the South African poultry industry.
Retail chicken prices
Minister Patel’s directive to ITAC does not mention retail chicken prices. However, according to ITAC’s press release of 3 October 2023, there is concern that chicken shortages caused by avian influenza outbreaks will have “severe food security implications on the availability and prices of poultry”.
In this regard, we refer ITAC to the study conducted for the SA Poultry Association by Genesis Analytics, one of South Africa’s most respected economics and competition consultancies.
Genesis looked at retail chicken prices during and after the six-month imposition of provisional anti-dumping duties in 2022. It found that prices did not drop when the provisional duties ended – prices rose.
The report says on Page 7:
“We find that average monthly retail (and producer) prices for frozen bone-in chicken portions are higher (not lower) in the suspension period (July 2022 to December 2022) when compared to the provisional period (January 2022 to June 2022). This is not consistent with the notion that these anti-dumping duties resulted in harmful pass-through for consumers; nor is it consistent with the notion that the suspension of the anti-dumping duties coincided with significant downward pressure on retail prices. It is correct that there was an initial decline in IQF retail prices in August 2022 but this was followed by consistent retail prices increases”
What was moving chicken prices was the impact of load shedding and higher input costs, not the imposition or removal of anti-dumping duties. The same is true today.
Genesis further found that that the imposition of anti-dumping duties on Brazil and for EU countries (the duties that were eventually imposed in August 2023) would have a minimal effect on retail chicken prices. It said this was likely to average a maximum of 2.5%, but in reality the impact would be a lot lower because various competitive forces would come into play.
This analysis suggests that removing those same anti-dumping duties will have a minimal downward impact on retail prices. The factors pushing up prices in 2022 are still strong in 2023.
Importers claim prices will go down
According to the Democratic Alliance, chicken importers maintain that scrapping tariffs and duties could bring down retail chicken prices by up to 33%.
That remains to be seen. Dumping has been going on for decades, giving importers what we believe are fat profits because they bring in chicken at ridiculously low dumped prices and it sells at the same price as local chicken.
FairPlay has repeatedly challenged importers to bring down chicken prices by passing on to consumers the benefits of low import prices. They have never responded, and prices have not dropped. Consumers have not seen low prices because of cheap chicken imports.
Based on their past behaviour, importers are more likely to make bigger profits if tariffs reduce.
VAT-free chicken will bring down prices
What would result in an immediate price reduction is removing the 15% value added tax (VAT) from the popular packs of local chicken portions.
It is a pro-poor proposal, because it would benefit low-income households for whom chicken is a staple part of their diet.
Vat-free chicken would help address widespread hunger and starvation, including malnourishment which results in more than a quarter of South Africa’s children being affected by stunting. This impacts them physically and mentally for the rest of their lives, and reduces the potential of successive generations.
FairPlay has campaigned since 2018 for Vat-free chicken. We have written to the President, and to ministers, but the government does not seem interested.
The issue in tariff rebates is more about import volumes than retail prices. However, concern about prices was given as the motivation for the 12-month suspension in 2022 of anti-dumping duties on imports from Brazil and four European Union countries.
If the government is serious about reducing chicken prices, Vat-free chicken is the way to go.
The poultry master plan
Removing tariffs and duties might well kill off the poultry master plan. Contrary to commitments by the government (and by chicken importers) in the master plan, it would expose the local poultry industry to a renewed flood of dumped chicken imports.
The master plan was signed in 2019, when the industry was in distress because of decades of chicken dumping. The plan aimed to curb imports and revitalize the local poultry industry. It aimed to increase local chicken production to supply an expanded domestic market and new export markets.
The poultry industry has done its bit – it has spent more than R1.5 billion on expanded capacity, but the government has not moved to increase local demand for chicken, and exports have not increased since 2019.
What the government has done is to increase protection against dumping. It has renewed the anti-dumping duties against three countries and imposed new duties against five more, albeit after an unnecessary one-year delay. It is now threatening to undo this progress.
Rebates would pull the rug out from under local producers. They are sitting with R1.5 billion worth of new capacity, much of which will probably lie idle because of reduced demand and bird flu, and now they face an existential threat from dumped imports. That’s not a recipe for future co-operation.
Conclusion
FairPlay believes that rebating (in effect cancelling) import tariffs and anti-dumping duties on chicken imports would be a disastrous undertaking.
It would result in a renewed and unrestricted flood of dumped chicken imports, with which local producers cannot compete. South African chicken producers are among the most efficient in the world, but no producer can compete with dumped imports.
Dumped imports would devastate the local industry, including thousands of small-scale poultry farmers. Rebating would put thousands of people out of work in the poultry, grain and logistics industries.
Rebating is the wrong solution to the problem of a looming shortage of local chicken supplies because of the spread of bird flu.
The right solution is to estimate the likely shortage in the months ahead, and to use increased chicken imports to fill the gap. This can be achieved under the auspices of the poultry master plan. It is a negotiated solution which would ensure a steady supply of chicken to the local market without crippling the South African poultry industry.
11 October 2023
