In Europe and America, the production costs of chicken are largely recovered from sales of breast meat. The rest of the meat is exported, often at very low prices. This causes problems for poultry producers in developing countries, such as South Africa.
By Prof Johan Willemse
This is a translation of an article which originally appeared in Landbouweekblad. Reproduced courtesy of Landbouweekblad.
Anti-dumping duties on chicken imports from Germany, the Netherlands and Britain have, on the recommendation of the Department of Trade, Industry and Competition, been renewed for a further five years. The tariff for Germany is 73.3%, for the Netherlands it is 22.1% and for Britain it is 30.09%.
The tariffs only apply to certain chicken products. The tariffs are much lower than the SA Poultry Association (SAPA) had requested, but they will nevertheless help to counter the disruptive effect of dumped chicken on the local market.
Chicken imports totalled about 485 543 tonnes in 2020, which was slightly lower than the previous year. The free-on-board value is estimated by SAPA at about R5.1 billion. The most important exporters of chicken to South Africa are Brazil, America, Spain and Argentina.
Graph 1 shows imports (tonnes) and the domestic production of chicken. The imported products are mainly processed products and mechanically deboned meat (about 40% of imports), while whole frozen chicken makes up about 5-6% of the imports. Bone-in chicken portions are about 35% of the import volume. Imports, on a per-tonne basis, comprise about 25% of the local market. Local producers slaughter about 21-22 million broilers a week.
In Europe and America there is not much of a market for chicken thighs and wings. Production costs are recovered mainly from chicken breast meat.
The portions and mechanically deboned meat are viewed as surplus product and are exported at very low prices, which do not reflect the full production cost. Mechanically deboned meat is mainly used in polonies and sausages.
Dumping is loosely described as the export of products at a price lower than in the market of origin, and sometimes lower than the cost of production. Some definitions refer to dumping as the action of an industry or business to gain market share in a foreign market by driving out competition and obtaining a dominant market position so that the exporter can influence price and quality.
Deboned chicken meat is imported at approximately R8/kg, against the local price of whole chicken which is about R27/kg. This is obviously not equal competition.
Composition of the meat market
The local chicken industry is much larger than the red meat industry. What happens in the chicken industry naturally has an influence on the red meat market and on consumer choices when purchasing. At the same time, the poultry industry is the largest consumer of animal feed in the domestic market. It is thus also in the interests of grain farmers that the industry remains profitable and grows.
Graph 2 shows the consumption of white meat (chicken) compared to red meat, as reflected in the Abstract of Agricultural Statistics 2021. Imports of 485 000 tonnes are added in as part of local consumption. Growth in the consumption of white meat compared to red meat in recent years is clear (Graph 3).
These cheap chicken imports are a threat to red meat farmers, and to local poultry producers. Imports also replace some 1.5 million tons of local feed consumption, which hurts local grain farmers. The large animal feed factories sell about 4.5 million tons of feed a year, but maize farmers must export yellow maize, partly because chicken imports have impacted the local market for yellow maize.
The South African meat industry is fairly well protected by relatively high import tariffs (from outside the BLSN countries) on beef and mutton with a maximum of 40%, and on pork with a maximum of 15%. Import tariffs on chicken vary according to the cut. The tariff on whole frozen chicken is about 82%, but it is lower on portions, and on chicken offal it is a maximum of 30%.
There have in the past been allegations that imports at harbours are deliberately declared at low prices. Then the tariff does not have much effect on low import prices, and the price including the tariff is considerably lower than the production cost of local product.
The other inconvenience is that cheap prices of frozen portions are not passed on to consumers.
The argument by meat importers that they are providing cheap meat to poor consumers has so far not been substantiated. The price of frozen chicken thighs was for example reported in June as R14/kg, but the domestic price was approximately R75/kg.
Competition and the consumer
The available information indicates that products are priced slightly lower than the price of the locally produced product. This assures fairly good profit margins for importers, and at the same time it imposes downward pressure on the prices of local producers.
Meat importers have therefore been very active in the media, attacking local chicken producers and kicking against import tariffs. It is a continuing debate where importers are very aggressively trying to defend their position.
One of their arguments was that the South African broiler industry is not internationally competitive and that its productivity is not good. Research by international and local institutions showed however that the local broiler industry can compete with its international peers on technical efficiency.
One of the biggest issues for the local industry is that when the South African maize harvest cannot supply local demand, the maize price rises steeply to import parity. This increases costs hugely, measured for example against the American broiler producers’ maize price, which always stays on the export price level.
Feed costs make up about 70% of local producers’ production costs. It is known that local maize farmers compete efficiently on the export market. The issue for chicken producers is that when feed costs rise sharply due to international factors, as at present, they still have to compete against subsidised imports. This disadvantages the whole local production of meat and animal feed, with little proven benefit for the end consumer. Importing dumped chicken therefore affects all