Published in Saturday Star, 11 March 2017.
There’s a fortune to be made out of chicken in South Africa. Don’t try producing it here – that’s a losing business. If you want to get rich, import cheap dumped chicken – buy low, sell high and you can make serious profits.
It’s a job-destroying business – thousands of South African workers have lost their jobs because of dumped imports, and thousands more are at risk as the local business becomes unprofitable. But in a country with probably the highest unemployment rate in the world, a lot of money can be made by putting people out of work.
That’s what’s happening in South Africa at the moment. Dumped chicken imports, mainly from the European Union, are pouring into the country at an ever-increasing rate. Local producers are losing money and reducing output. As plants close, thousands more join the jobless queues. Thousands more jobs are at stake.
The profits are going to the importers, and others in the importing chain. As job-creating businesses cut back and lay off workers, so the job destroyers prosper.
It’s not the consumers who benefit. Importing cheap doesn’t mean selling cheap. You sell dumped chicken just below the current retail price, stealing market share, putting local producers out of business, but ensuring a fat profit.
Importing dumped chicken must be a great business. Some 240 000 tons of chicken pieces was imported into South Africa last year, according to official figures. Much of this was dumped – sold for less than it costs to produce, in contravention of world trade rules. And all of it was profitable, because selling prices are high.
Importers run private businesses. They don’t reveal what prices they pay for dumped chicken, what they sell it for, or to whom. But, in round figures, SA Revenue Service figures tell us that importers have been paying about R15/kg for bulk frozen chicken pieces from the EU. This translated into the average retail selling price of just under R30/kg in SA in 2016.
Of course there are costs. Transport, insurance, agents, warehousing and other fees have to be paid, and retailers take their cut. But there’s clearly lots of profit, at the expense of South African jobs.
This money-making value chain starts with chicken producers in the EU and South America. Their market is northern hemisphere consumers, who prefer chicken breasts and wings. These premium portions cover costs and ensure a profit, leaving a huge surplus of unwanted leg portions – the drums and thighs popular in South Africa and elsewhere.
These “surplus” chicken pieces are stored in bulk freezers and sold off cheaply to anyone who will buy them. They import in frozen bulk, and we don’t know how much of it is defrosted, repacked for local customers and refrozen. South African consumers don’t know where it comes from, or when, whether it is safe or anything else about that supposed bargain.
The problem is not imports per se, but dumping. If EU chicken import prices were based on high EU production prices, there would be no problem. But when the selling price is below the cost of production – in the EU the production cost is at least R25/kg – then that is dumping and it is illegal in terms of World Trade Organisation rules.
Until dumping is stopped, by tariffs or technical barriers, there’s a beckoning fortune if you can buy low and sell high.
Who is making this money in South Africa? The public doesn’t know, because details are not public.
Importers are represented by the Association of Meat Importers and Exporters (AMIE). The AMIE chief executive, David Wolpert, is a fierce critic of the notion that imports of dumped chicken are killing the local industry. He and members of the AMIE executive used to say don’t blame us, the problem is that South African chicken producers are inefficient and uncompetitive. Now they have changed their tune in the glare of the facts.
The fact is that the South African industry is very efficient and highly competitive. But no industry, however efficient, can compete against dumped imports – chicken that foreign countries are selling at any price to get rid of an unwanted surplus.
It is also a fact that every time a South African worker in the chicken industry loses a job because of dumping, it is the importers who win. The more they gain market share, the more profit to be made.
Importing is a rapidly growing business – chicken imports have trebled in the last few years, and imports from the EU in particular have shot up. Imported leg quarters are now roughly 25% of the retail market. This is why dumping is forcing local producers to cut back.
Mr. Rob Davies, the Minister of Trade and Industry, has set up a task team to investigate the crisis in the chicken industry. We hope he acts soon to stop chicken dumping, as he has promised to do.
Importers have helped to precipitate that crisis. It’s time for a thorough public investigation into the importing business and the profits made from buying dumped chicken and destroying South African jobs.
By Francois Baird
Francois Baird is the founder of FairPlay, an anti-dumping movement.