Though aimed at job protection, the new tax on chicken imports could benefit retailers the most.
"For your roast chicken, you can all pay a little bit more and help to support job creation in South Africa. That's the decision we have taken," Minister of Trade and Industry Rob Davies said with the slightest chortle when he announced that new tariffs applying to five poultry products had come into effect on Monday September 30.
The minister's heart is certainly not bleeding for higher-income households, which have become accustomed to regularly enjoying a juicy chicken roast on a Sunday night or fillets accompanied by a garden salad for a weekday lunch.
But the impact on the poor of the tariffs on South Africa's most loved meat, of which we consume more than 30kg a head a year, has yet to be seen as the leeway granted to the industry comes with a number of risks.
In response to cheap poultry imports and a struggling local industry, tariffs have risen to protect about 100 000 jobs supported by the sector.
This is most notable in the case of whole chickens, on which the duty has grown from 27% to 82%.
But this more expensive product accounts for just 1% of imports and is consumed by higher-income households.
Similarly, boneless cuts, for which the tariff has increased from 5% to 12%, are consumed by higher-income households, although it represents 5% of poultry imports over the past 12 months.
The government went easier on the cuts consumed regularly by poorer households.
The tariff on carcasses increased from 27% to 31% and for offal it jumped from 27% to 30%.
Bone-in portions constituted 54% of poultry imports over the past 12 months and make up 70% of domestic production, although the local industry is at a significant price disadvantage, according to Davies.
“The food-price issue is important, and we have to strike a balance," he said.
As such, this tariff was increased from 220c a kilogram to an ad valorem duty of 37%.
The poor feel it
The concern is that it is poorer consumers who will feel the cost push the most.
Kevin Lovell, the chief executive of the South African Poultry Association, which continues to lobby for more protection for the local industry, said the entire tariff increases on the products entering South Africa were not likely to come through into the retail price.
He estimated that, in the case of the price for boneless portions, in practice it would translate into an extra 70c a kilogram, for whole birds about R1.50 a kilogram, for carcasses and offal an added 15c a kilogram, and for bone-in portions about R1.60 a kilogram.
“In the bone-in portions, the change in tariff is actually R3.07. For whole birds, I think very little of it will come through. [But] we will have to wait and see what the market will do."
David Wolpert, the chief executive of the Association of Meat Importers and Exporters, said that, although the minister had been sensitive to products consumed by poorer households, the prices for bone-in portions would be pushed up by 20%.
Member countries of the World Trade Organisation have agreed to their own unique tariff thresholds, called bound tariffs, for various imported products.
Nigeria bans import products
In China, the maximum on these chicken products is 20%, for Brazil it is 35%.
In India, it is 100%, except for whole frozen fowls at 35%. In South Africa, there is a maximum of 82%, which has been used to the full only in the case of whole chickens.
Nigeria has banned 24 products including poultry imports.
The World Bank says that the ban, along with 23 other product-import bans, raises the cost of living and if removed and replaced with tariffs would allow more than four million Nigerians to exit poverty.
The Nigerian government, however, says the move has created 20-million jobs in the poultry industry alone.
It is important to note that it is estimated that poultry imports account for anything between 10% to 20% of South Africa's chicken consumption, and already large fast-food retailers such as Nando's and KFC have rushed to assure consumers that they source all their poultry products locally and so the chicken meals on offer will not be subject to any price increases as a result of the tariffs.
Consumers pay the high price
Wolpert said that, irrespective of the source of the chicken, the price was going to go up, and the consumer was going to pay for it, as local producers who claim to sell some products at cost price will certainly use the opportunity to achieve a profit.
But protected industries in South Africa have a history of birthing cartels, and Davies has warned that the relief shouldn't be viewed as a high-tariff wall behind which producers can engage in anticompetitive behaviour.
Producers have come under scrutiny for injecting too much brine into chicken and “reworking" those that were past their expiration date before selling them.
“We will be very unhappy if we see uncompetitive practices between big and small poultry farmers," Davies said.
Instead, increased productivity and growth would be expected and an early review of the impact of the tariff has been recommended.
Davies said the agriculture department was working on regulations related to brining and said the government was essentially “calling on the industry to clean up its act".
The industry is adamant that this is not a “get out of jail free" card, according to Lovell.
“We [the industry] will have to bring in transformation and growth and those kinds of things. It's not a licence to behave badly or operate inefficiently."
Operating inefficiently is something the local industry has often been accused of by local importers and the Brazilian poultry association, the losers in the new tariff regime.
Critics claim that chicken producers, although experiencing largely flat or lower profits, are being greedy.
Research in 2009 by the National Agricultural Marketing Council showed that South African broiler farmers were becoming more and more productive.
Producers, however, say the market power is in the hands of the retailers and are concerned it is they who could use the opportunity to increase their already healthy profit margins on such products.
Effect on chicken prices
Prior to the announcement of the new tariffs, Pick n Pay said any increase would have an effect on chicken prices.
Despite the fact that it sources most of its chicken products from the local industry, as in the case of some other retailers, imports make up the balance to satisfy growing consumer demand.
Tracy Ledger, a PhD fellow at the Public Affairs Research Institute, said the wholesale price of food products in South Africa tended to be “quite far removed from the price you or I pay" and there was no direct link between the two.
The impact of the tariff increase, Ledger said, depended on the ability of retailers to push it through.
“South Africa has a very exploitative food system. Retailers make astronomical profits," she said.
“I'm quite sure the retailers will find some way of using the increase in the import tariffs to add to their bottom line."
Ledger said it would be “extremely hypocritical" for the retail sector to point a finger at increases in tariffs when it made money selling food to the poorest of the poor.
Brazil appears to be a major culprit in the dumping of cheap chicken in the country. But the industry claims the tariff increase will not mean much when the European Union (EU), a major importer of chicken legs into South Africa accounting for about 55% of chicken imports, according to Wolpert, remains unaffected because of a treaty, known as the trade development and co-operation agreement, which allows for no duty on these products imported into the country.
Although the trade agreement can't be changed, there are safeguard measures within the treaty, as well as WTO anti-dumping tools, which the industry is considering using to clamp down on the EU.