Chicken Industry

SA’s chicken industry fights for survival amid flood of cheap Brazilian imports

The steep drop in RCL Foods’ earnings is a taste of what’s to come if we don’t protect our industry and stop the onslaught

When a big player in the food industry starts to show distress, it is time to sit up and listen. The announcement that RCL Foods’ first-half headline earnings fell by more than a quarter, and CEO Miles Dally’s explanation that it is largely due to dumping, certainly underlines the dire situation the SA chicken industry finds itself in after a record year of dumping in 2018. What happens at the top of the value chain most certainly mirrors the picture lower down, and the effect of dumping on small-scale farmers is nothing short of disastrous.

Brazil has now become the major threat to the SA chicken industry, and by extension the grain industry, which relies on poultry feed purchases for a large part of its income. In fact, the threat looms over the whole SA region, where the poultry industry is a major employer and a significant contributor to local economies and food security.

As its other major markets have closed doors against Brazil due to food-safety concerns, this massive exporter of chicken is clearly targeting SA with ever-increasing volumes of cheap chicken portions. Years of substantial agricultural subsidies and profits from premium breast meat sold to the US and elsewhere enable Brazil to dump massive amounts of leg quarters and other “unwanted” cuts in SA at prices they can manipulate.

This process is helped along by importers and middlemen who buy in bulk and make vast profits by selling into the SA market at, or just under, the price of locally produced chicken. In this way imports have gained market share, taking up increased local demand while SA producers lose out, workers lose their jobs and small towns in the countryside die.

The EU, with production costs far higher than those of SA’s efficient farmers, began the assault of dumped chicken nearly a decade ago. That was suspended in 2016 because bird flu in Europe closed their borders, but it is likely to resume in the near future.

It has been staggering to watch the speed with which Brazil identified the gap and stepped in — its chicken exports to SA rose by 50% after the EU ban. Imports from Brazil have doubled since 2014, and it is now the main threat to the local industry, which is fighting for survival. And while big producers such as RCL can diversify and invest in other sectors that can offset the losses, the thousands of smaller farmers who have no other recourse are slowly bleeding out.

The impact on small-scale farmers and new entrants is disproportionately higher. Many black new entrants with government funding stand no chance against this onslaught because they have to service debt in addition to fighting the Brazilian imports.

Poultry imports from Brazil have been climbing steadily. Official import statistics from the SA Revenue Service show that in 2017 SA imported 524,000 tons of chicken, worth R5.9bn at import prices. By 2018 this had risen to a record 539,000 tons, worth more than R6bn on import and possibly double that at retail level. In both years, more than 60% came from Brazil, which is world’s largest exporter of chicken meat.

This is poultry that could and should be produced in SA, in local facilities, creating local jobs. The effect is being felt throughout the poultry value chain, including the grain and seed industry. Imports are feeding rising local demand at the cost of local production and local jobs.

The SA Poultry Association (Sapa) has estimated that 30,000 jobs could be created by replacing chicken imports with local production. With the right government assistance, this could transform the agricultural sector. This potential growth could go a long way to addressing the government’s goals for transformation, land redistribution and food security.

This is why the Sapa has applied for an 82% ad valorem import tariff on bone-in and boneless frozen chicken from many non-EU countries, including Brazil. Last year, SA imposed a 35% safeguard duty on EU chicken, to be lowered in steps over the next four years. Now protection is needed against Brazil.

Brazilian poultry imports have doubled since 2014, rising from 15,000 tons a month in October 2014 to 30,000 tons in October 2018. By 2017, they were 44% higher than the previous year, and last year that rose a further 6%, with Brazil eventually accounting for 61.5% of SA’s poultry imports.

Unfortunately for the consumer, low import prices are not passed on to them. Imported chicken is sold at or just below the price of local chicken, ensuring market share growth and substantial profits for importers and middlemen.

The tariff decision will be made by the International Trade Administration Commission (ITAC), the government body that oversees the application of tariffs and duties. Central to its deliberations will be the degree to which Brazil, as the major source of chicken imports, is harming the local and regional markets, causing job losses or preventing local expansion.

The statistics produced by Sapa in support of its tariff application show the impact of the unrelenting flood of imports on local producers. It speaks of serious injury to local poultry producers, including downsizing and job losses, and a deterioration in SA Customs Union’s food security position.

This growth in Brazil’s chicken production has come at a price — one food-safety scandal after another. Revelations in 2017 of bribery and corruption related to food-safety inspections led to temporary import bans from a number of countries.

Just last month there was another Brazilian food-safety scare, when salmonella contamination led to the recall of 450 tons of chicken destined for local and export markets. Saudi Arabia blocked imports from five Brazilian producers for “technical” reasons believed to be salmonella-related, and EU countries have maintained a ban on 20 Brazilian producers because of salmonella issues.

SA can ill afford another food-safety crisis after about 200 people died as a result of listeriosis last year. Chicken is the most important source of animal protein in lower-income SA households and it is unfair to expose the vulnerable to these health risks.

Concerns about food safety in Brazil lead FairPlay to join the calls for a ban on all Brazilian chicken imports until these safety issues have been completely resolved.

In addition to a possibly temporary food safety ban, saving the SA chicken industry from the serious impact of Brazilian imports requires four immediate steps:

Approval of the application for 82% tariffs on Brazilian chicken imports;
Regulations requiring all imported chicken to be labelled according to the same standards applied to local chicken;
A ban on frozen bulk-pack imports, with imports limited to whole bird imports only and packed at source for SA customers, with SA authorities ensuring compliance with the same rules and regulations as those to which our own producers must adhere; and
An investigation into whether Brazil is liable for anti-dumping duties, as China has imposed, in addition to tariffs.
These actions against Brazilian and other imports are not anti-competitive or protectionist. They are required, in terms of local and international trade law, to provide a level playing field where all countries can compete on equal terms.

SA chicken producers are among the most efficient in the world, producing chickens cheaper than most countries, including all EU countries. They would compete effectively against all imports provided steps are taken to counter the unfair advantage resulting from subsidies and the unequal impact of various regulations.

At stake is the survival of the SA chicken industry and the jobs of thousands of workers in the region’s poultry and grain industries. Brazil is at the core of this existential threat.

• Baird is the founder of the FairPlay anti-dumping advocacy movement.