Importers get their sums wrong

Claim #1: Removing import tariffs will magically make chicken 33% cheaper.

Chicken importers make two erroneous claims to bolster their proposal for the removal of all tariffs on imported chicken.

The first is the claim that removing import tariffs would lead to a 33% drop in the price of chicken – all chicken, not only the 14.9% of the market they say imports supply.

Paul Matthew, CEO of the Association of Meat Importers and Exporters (AMIE), cites different reasons why the price drop will happen. One of them is that South African producers supplying the other 85% of the market will simply have to follow suit.

These are the same producers who have been beset by decades of dumped and predatory imports, and now face massive increases in inputs such as fuel, fertiliser and feed because of the Ukraine war. Price increases are inevitable.

Mr Matthew clearly thinks that, under these circumstances, producers can simply slash 33% off the price of their chicken products. That’s a sure path to bankruptcy, job losses and a lack of protein for South Africa’s poorest households. It’s not going to happen. But nor is the 33% price drop.

And, as we have been pointing out, the first people to benefit from the removal of import tariffs would be importers, who have been losing business as import volumes decline.

The way to bring down the price of chicken, as FairPlay has been advocating for the past four years, is to remove the 15% VAT from the chicken portions on which lower-income families depend for meat protein.

Claim #2: Chicken has increased by 10% each year for 10 years.

The second error in importers’ reasoning is their erroneous claim by that chicken prices have risen by 10% a year for the past 10 years. They haven’t.

Importers should stop claiming massive increases that didn’t happen (compounded, this would mean increases of 256% over 10 years). They presumably hope that people will believe it’s due to increases in import tariffs.

The truth is that tariffs have been only a small part of price increases over the past decade. The biggest impact has come from feed price increases, which can make up 70% of a chicken producer’s input costs and have gone down only once in the past decade.

The SA Poultry Association has calculated the true producer and retail price increases from official statistics. They have worked out the average monthly and annual increases from 2011 to 2021, the 10 years that Matthew is talking about.

Across a range of chicken products, not one producer or retail price has increased by 10% a year over that decade. Not all, not even most. None.

What has gone up rapidly is feed prices – 9.5% in 2018/19, 9% in 2019/20 and 16% in 2020/21.

Chicken prices will probably keep rising, given the relentless pressures of rising input costs that started well before the Ukraine war. But to claim that chicken prices, either producer or retail, have gone up by 10% annually for a decade is simply wrong, and here are the stats to prove it.

Average annual producer price increases per kg, 2011 to 2021
Average price, frozen chicken including offal6.9%
Average price, fresh chicken including offal5.4%
Average price, fresh and frozen chicken, including offal6.8%
Fresh chicken portions (braaipack)6.0%
IQF (individually quick frozen) mixed portions7.5%
Frozen sundries4.2%
Fresh whole chicken (not all prices available)4.7%
Feed price (16% in 2021)5.9%
Source: StatsSA and SAPA
Average annual retail price increase per kg 2011 to 2021
Whole chicken fresh7.1%
Whole chicken frozen6.8%
Chicken portions fresh6.0%
Chicken portions frozen7.5%
IQF 2kg chicken portions (from 2017)6.0%
Non-IQF frozen chicken portions (from 2017)4.8%
Source: StatsSA and SAPA

Bewildering logic

The various (and changing) reasons put forward by AMIE’s Paul Matthew to justify his call for the removal of import tariffs was highlighted by FairPlay founder Francois Baird, in a letter to the Sunday Times.

Baird said Matthew had stated three different things:
“First, that eliminating tariffs would prevent domestic producers from increasing prices. So, no price drop, just the absence of a price rise.

“Then he says removing tariffs ‘could possibly bring the price of chicken down across the board’. Finally, he says ‘local producers will be forced to drop prices commensurately’.

“So he goes from no price drop, to maybe, to definitely – but because of the actions of chicken producers, not retailers as he originally asserted,” Baird said.

No wonder he thought Matthew seemed confused. And he wasn’t the only one.