Falling rand rains on Agoa parade
The exchange rate may be the undoing of a last-minute deal over chicken imports from the United States.
As of 11.30am on Thursday morning, South African borders were opened to United States pork, beef and poultry products. At the same time, however, the rand slid past 16 to the dollar, potentially rendering these products uncompetitive once they enter the domestic market.
These products have been at the heart of tense negotiations between the US and South African authorities. But after talks came down to the wire, Trade and Industry Minister Rob Davies announced late on Thursday that the two countries had struck a deal.
This brought to an end an impasse that risked seeing certain local agricultural goods being excluded from the US’s African Growth and Opportunity Act (Agoa), which grants preferential treatment to imports from qualifying sub-Saharan African countries.
But, despite an agreement now having been reached, Agri SA president Johannes Möller said: “At R16 to the dollar, it [US poultry in South Africa] won’t be competitive. Even if it is duty free.”
David Wolpert, chief executive of the Association of Meat Importers and Exporters of South Africa, said importers were worried about currency weakness and pricing.
However, he noted that imported chicken has been more expensive for some time now, but there has still been a demand for it because the quality is good – “despite what local industry says”.
Local producers will also be affected by the weak rand as they will still have to import maize for feed, pushing up the local prices. The severe drought in South Africa is expected to substantially increase maize imports in 2016.
“Unfortunately, consumers will suffer either way,” Wolpert said.
Until Thursday’s breakthrough agreement, the renewal of Agoa and South Africa’s inclusion in this trade treaty was becoming an increasingly complex matter. A disagreement over the procedure for dealing with salmonella became the final sticking point.
Kevin Lovell, chief executive of the South African Poultry Association, explained that the disagreement was around acceptable levels of salmonella and what control systems would be used. South Africa tests all poultry before it is distributed into the market, while the Americans recall products if and when specific strains of salmonella are detected.
Both nations are, however, compliant with the World Organisation for Animal Health regulation that sets guidelines around issues such as salmonella and avian flu but leaves it up to each nation as to how they achieve common objectives.
“Our standards are our interpretation of what is safe,” said Lovell. “They are considered to be good and other countries can comply with our standards. They are [European Union] and international standard protocols.”
A compromise has, however, been reached and risk-based testing will be implemented when it comes to US poultry, the government explained.
“After intense negotiations, and the review of the US food laws, South Africa has agreed to, for the first three months, risk-profile all consignments imported from US export establishments,” it said in a statement.
“Thereafter, a revised statistically risk-based sampling plan will be implemented. South Africa will sample and test all consignments for compliance. The department of health will monitor these products after release from ports of entry.”
The government said this arrangement is adequate to defend South Africa’s domestic chicken flocks against any diseases that could be imported.
More than 60 days have passed since President Barack Obama presented an ultimatum to South Africa to resolve the issue blocking US meat imports by December 31, or lose tariff benefits for its agricultural products entering the States.
When briefing the media, Davies explained that the time difference in the US meant the government was still awaiting confirmation from Washington that all was in order.
Although consensus was reached, it is still not clear whether South Africa’s agricultural products will still have to pay a penance for missing the December deadline.
“We could have been suspended on the fourth of January. It is the seventh now. That’s a good sign,” Davies said. “Second, we have concluded the work: that is a good sign. We are expecting and calling on the US to do the right thing, and for South Africa’s continued involvement in Agoa without further interruptions.”
US trade legislation gives the president the power to suspend benefits on a number of products for nations that are considered noncompliant with certain Agoa provisions. Obama, in a November 5 letter to Congress, identified agricultural produce as the target for suspended benefits should a resolution not be reached.
The loss of trade benefits would not block South African agricultural exports to the US, but would affect their duty-free access. It is not clear which products this could affect, although Davies explained it could include citrus, macadamias, canned foods, and wine.
The local Poultry Association said the agricultural exports under the agreements are worth about $170?million, while the total Agoa-related trade is about $2?billion.
Davies said Agoa provided tax relief of $47?billion, and that agriculture exports to the US had been relieved of $6?billion in duties. From a trade point of view, the Act remains a valuable trade opportunity in the largest market in the world, he said.
JB Cronjé, a researcher at the Trade Law Centre for Southern Africa, said that the products that lose preferential treatment under Agoa would be subject to the “most favoured nations” applied tariff rate – under which 60% of South African exports already enter the US.
For example, instead of being duty free, oranges and mandarins would be subject to a tariff of 1.9 US cents per kg when entering the States, and orange juice 7.85 US cents per litre.
South African macadamias entering the States would be subject to a tariff of five US cents per kg, but this was a small cost when considering these nuts sell for $15 a kg in the US, said Derek Donkin, chief executive of the South African Subtropical Growers’ Association.
Citrus is the most important local product going to the US under Agoa. In 2014 South African oranges worth $41?million and citrus juice worth $58?million entered that country.
Piet Smit, vice-chair of the Citrus Growers Association of Southern Africa, said the Western Cape citrus industry had benefitted tremendously from Agoa over the past decade.
Should citrus products be stripped of their tariff benefits, the issue would be competitiveness, said Smit, because some citrus-producing South American nations have free-trade agreements with the US.
Andre Morgenthal, spokesperson for Wines of South Africa, also said losing duty-free privileges would mean losing a competitive edge in the US market.