FairPlay has countered the simplistic argument from chicken importers that the South African poultry industry’s current profitability means import tariffs are no longer needed.
Two of South Africa’s largest poultry producers, Astral Foods and Rainbow Chicken, have announced substantial increases in profitability this year. This has prompted chicken importers to join the United States in calling for an end to South Africa’s general import tariffs on poultry.
General, or Most Favoured Nation (MFN) tariffs, are separate from and in addition to the anti-dumping duties that apply to nine major poultry producing countries.
In an article in The National, the new publisher of Business Report which appears in newspapers in South Africa’s major centres, FairPlay founder Francois Baird focused on the links between tariffs, weather and profitability.
“Profitability is a key consideration when tariffs are considered by South Africa’s trade regulator, the International Trade Administration Commission (ITAC),” he said.
“Without profitability, there can be no investment, no expansion and no job creation.”
When it increased MFN tariffs in 2020, ITAC noted that the poultry industry was globally efficient “but has experienced profitability challenges due to constantly being undercut by low priced and opportunistic dutiable imports”.
Profitability in the poultry industry is hugely influenced by the price of grain, which makes up around 70% of the cost of producing a chicken.
At the moment, grain prices are low after two years of good rains and record harvests. The El Nino weather phenomenon, which brings hotter and drier conditions to Southern Africa, was forecast to hit the region this summer.
“There are already projections that this year’s El Nino could be the worst in living memory,” Baird said.
“A combination of reduced maize plantings, extreme heat and possibly drought would reduce grain harvests. Despite stockpiles from previous harvests, grain prices would inevitably rise. Poultry profit margins could come under severe pressure. Small-scale farmers in particular could again face contraction and job losses.
“Simply put, the good years must offset the bad years in providing affordable cheap chicken sustainably to the consumer and ensuring national food security.”
In addition, removing MFN tariffs could expose the local poultry industry to hugely increased volumes of chicken imports from foreign producers who enjoy direct and indirect subsidies, while South African producers are not subsidised at all.
Chicken importers stand to gain financially from increased imports. They present a simple argument, but the answer is far more complicated.
