Poultry importers, producers in standoff over proposed import tariffs

25th July 2019

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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The standoff between South African poultry producers and importers, about proposed import tariff increases continues.

A decision to implement tariff increases of up to 82% on chicken imported from non-European Union (EU) and non-Southern African Development Community (SADC) countries could result in shortages in the domestic market, a study commissioned by the Association of Meat Importers and Exporters (AMIE) has found.

The study, which was undertaken by business advisory firm FTI Consulting, set out to review the South African broiler industry, with a focus on international trade.

The study found that, despite already high levels of trade protection, domestic producers had not increased production to meet growing demand. There was no evidence that further protection would allow them to achieve this objective, the authors stated.

At a media briefing to release the findings of the study, on Thursday, AMIE CEO Paul Matthew said the association intended to use the study to facilitate a “broader discussion” between government and industry and to influence policy change so that a South African poultry strategy could be developed, which would be beneficial to all parties.

The study suggested that alternative policy measures could be more effective and should be considered by policymakers.

Solutions to be considered include supply-side measures to increase the competitiveness of producers and putting initiatives in place to help small-scale farmers overcome barriers to entry.

Additionally, the report said that increased import protection would not help to achieve these outcomes and that alternative measures for developing the industry should be explored before higher tariffs could be justified.

However, FairPlay founder Francois Baird said the findings of the study – that imports are not harming the local industry, and that imports are necessary owing to the local industry not being able to meet local demand – were false.

In an emailed response to Engineering News Online, he said an ever-increasing “flood of dumped chicken imports”, mainly from the EU and Brazil, had resulted in production cuts and job losses.

As an example, he referred to RCL Foods having had to cut production by nearly one-million chickens a week in 2017, at a cost of 1 300 jobs, and having had to restructured its chicken business away from sectors being hammered by dumped imports.

“The reason that local production is not increasing is that the surge of dumped imports makes it unattractive, or unprofitable, to invest in local expansion. The result is that most of the steadily increasing demand for chicken in South Africa is being taken by imports [which means that] we are exporting jobs to Brazil and elsewhere,” Baird explained.

The AMIE commissioned the study after the South African Poultry Association (Sapa) applied to the International Trade Administration Commission for South Africa (Itac) for tariffs, which are currently at 12% for frozen boneless cuts and at 37% for frozen bone-in pieces, to 82% for both categories, in order to protect the local industry from imports.

However, according to AMIE and the study, implementing the proposed tariff increases, in an industry which is already highly protected, would result in chicken volumes available locally potentially dropping by more than 44 650 t.

This drop in volumes would result in higher prices and an estimated decrease in South Africa’s gross domestic product of R1.1-billion in the first year following an increase in tariffs. This loss would be accompanied by rising unemployment, which “will cause a further drop in domestic consumption and investment”, the AMIE stated.

Owing to job losses resulting from elsewhere in the value chain, the study found that the proposed tariff increase would lead to potential job losses of over 1 400 across the South African economy.

These costs to the economy “cannot be justified” based on protecting the domestic poultry industry, the AMIE said on Thursday.

Baird, however, argued that if the local industry was protected against unfair competition, there would be expansion and job creation. Sapa has estimated that 30 000 jobs could be created by replacing imports with local production.

The solution, Matthew suggested, would be to adopt a freer market approach that allowed for imports to supplement supply where domestic production fell short. 

Although imports had increased in recent years, these still account for less than 20% of domestic sales, which the study noted showed that “there is no clear evidence that increased imports have displaced domestic production”.

Instead, the study suggested that the industry should rather look at why domestic producers have not been able to increase supply, despite continuous and high levels of trade protection.

According to the study, trade protection “often leads to trade diversion, rather than to a reduction in imports and that it has not increased the export competitiveness of domestic producers”.

The study showed that “trade protection is not the solution to the problems in South Africa’s broiler industry and that the associated costs to the economy will outweigh the benefits”.

“The constant claim that chicken is being ‘dumped’ in South Africa is misleading, as it creates an impression of inferior goods being sold locally. Imported chicken is subject to many quality and veterinary examinations that ensure quality,” Matthew averred, highlighting that “the local broiler industry has been the subject of significant levels of protection over the years”.

However, Baird noted that, considering that Itac, which was considering the industry’s tariff application, had already found that imports were harming the local industry, Baird argued that it was now the level of additional tariffs for the enablement of the local industry to compete on a level playing field, that had to be decided.

“It is worth noting that the tariff application will not affect all chicken – the EU and SADC regions are excluded – and nor will it affect all imports from Brazil, which is the main target of the application. The application is specifically for two product areas, namely frozen bone-in chicken portions, and frozen boneless chicken portions,” he said.

Sapa, meanwhile, in a separate statement on Thursdayy said AMIE’s decision to commission a study now, when the decision on the tariff was pending, was “questionable”.

The association said the process had run for almost a year, during which time the AMIE “had all the time” to make submissions along with all other stakeholders, such as the South African National Consumer Union, the Food and Allied Workers Union, as well as Emerging Black Importers and Exporters of South Africa and others.

According to Sapa GM Izaak Breitenbach, “there is nothing new in this … study; the Minister and ITAC have all that information already and would have been using the information supplied by every relevant stakeholder, including AMIE, to reach a decision on the tariff”.

He added that the fact that the South African poultry industry was experiencing unfair trade and suffering a negative impact was not in dispute any longer but said the situation had been established.

All that remained, according to Breitenbach, was that the correct tariff now needed to be decided on by Itac and ratified by Trade and Industry Minister Ebrahim Patel.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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