Poultry imports slaughter industry

Fowl play: Illegal dumping practices must be curbed if local businesses are to thrive. (Madelene Cronjé, M&G)

Fowl play: Illegal dumping practices must be curbed if local businesses are to thrive. (Madelene Cronjé, M&G)

Consider this: in Africa, Nigeria doesn't allow chicken imports, neither does Kenya nor do many others on the continent. Almost all the Southern African countries apply quantitative import controls, generally limiting imported products such as poultry.

Our neighbours tightly control their borders to South African meat imports. Swaziland does not allow any chicken imports, Botswana and Mozambique hardly make any import permits available and, though Namibia has been a significant export destination, its government has now introduced a limit of 600 tonnes of imports a month, down from 2 500 to 3 000 tonnes.

It is an international trend.
Some worldwide examples of high tariffs on imported chicken include the European Union's R5 to R12 a kilogram; Canada applies a 249% tariff on most imports; Norway imposes a whopping 306%, Mexico is just behind at 234%, and India's is 100%.

Many developed countries also have stringent sanitary measures that make exporting from most developing countries almost impossible. This has resulted in Brazil, for example, exporting vast quantities of chicken to South Africa, while, in effect, keeping its home market closed to South African exports.

The picture in South Africa is completely different. In spite of a well-established poultry industry — a huge employer and tax-paying entity — it is one of the most unprotected industries in the world, a state of affairs that is being exploited by Brazilian and EU exporters.

An increase in import tariffs
The South African Poultry Association's application put before the International Trade Administration Commission (Itac) in March, seeks an increase in import tariffs on frozen poultry to safeguard the local industry from cheap imports and their adverse effect on employment and the industry as a whole.

The request holds that the future of local poultry producers is at risk by increasing import volumes of extremely low-priced frozen poultry, partly a result of illegal dumping practices. Dumping occurs when a country sells a product to other countries for a lower price than it is sold at home.

Itac recently found dumping in South Africa of whole birds and breast fillets from Brazil. Trade and Industry Minister Rob Davies has sought to prevent this with a tariff rate review, rather than approving the imposition of anti-dumping duties.

This anti-dumping duty is a remedy open to South Africa through the World Trade Organisation in terms of its rules of trade. This acts as a marginal safeguard to local industries faced with unfair competition from foreign producers.

The fact is that South Africa is more efficient at producing chicken than the United States. But what impacts negatively on local producers are higher input costs, especially grain, power, labour and fuel. Market imbalances created by import volumes that are not static but increase or decrease erratically make it impossible to factor these into business planning.

Global oversupply
The production cycle is so long that producers are unable to reduce production in the face of unexpected declines in demand other than to slaughter broiler stocks at a huge loss. Therefore, in times of global oversupply, countries may resort to dumping products on other markets.

For small open economies such as South Africa, these periods of global oversupply can cause a surge in imports that can destroy profitability for local producers. Sudden increases in supply mean local producers are stuck with excess capacity and have no option but to discount prices heavily. This is what has happened in South Africa recently, where chicken (excluding mechanically deboned meat) imports have more than doubled from an average of 8 000 tonnes a month in 2008 to about 20 000 tonnes a month last year.

In simple terms, the local poultry industry has for years been faced with large quantities of imports. At present they equate to about 170-million chickens a year. And when mechanically deboned meat — used in polonies, sausages and other processed poultry products — is included, imports equate to about 265-million chickens a year. Sensitive to the fact that much of the mechanically deboned meat is consumed by low-income groups, the poultry association is not proposing any duty on this product. Thus an argument by meat importers that the poor are going to pay more or have their access to chicken products as a protein source restricted is false.

It is disconcerting that the meat importers have continually opted to misrepresent the realities ­confronting the local poultry industry — or the implications that an increase in the tariffs over various chicken products is likely to have for the local consumer.

Prices
In fact, the tariff level requested for the most significant product — leg quarters, which make up two-thirds of the imports (excluding mechanically deboned meat) — is only 56%, which is an increase of about 30% from the current level, far below the 82% reported in the media.

Calculations show that an increase in the tariffs is likely to result in a price increase of between 10% and 15%, and not the claimed 50%. Chicken prices are lower now in real terms than they were two years ago.

This is a small price to pay for the preservation of the 125 000 jobs provided to South Africans in an industry that accounts for a quarter of all agricultural gross domestic product.

In the past 18 months, five small to medium-sized poultry farms have closed or are in business rescue, with more than 2 000 jobs lost. Over the same period, the larger poultry producers shed 3 000 jobs, with reports indicating that many more enterprises are sustaining losses on an unprecedented scale.

Should this continue unchecked, the industry faces the loss of another 20 000 jobs in the short term. Apart from the immediate impact, future investment will be severely curtailed and no new jobs will be created.

An "industry in distress"
As the poultry industry accounts for about a third of local maize consumption and almost all the soya consumption in the country, the rural economy, its sustainability and future development are also in danger. This scenario represents an "industry in distress" as acknowledged by the department of trade and industry, which, thankfully, is within its rights to consider measures that help producers to remain in business.

Should the industry not be safeguarded, South Africa's national food security is at risk. Being able to feed its own population is key to a country's stability. Imports of food will only last for as long as the exporting countries are happy with the prices paid. The minute they are able to get a better price elsewhere, they will sell their produce to that country.

Although we are not proposing a ban on chicken imports, it is clear that the local industry needs stricter measures if it is going to survive. We hope that Itac and Davies will share our view and bring much-needed relief to the largest part of the local agricultural sector — the supplier of more than half of all the animal protein eaten locally.

Kevin Lovell is chief executive of the South African Poultry Association, which has represented the interests of the poultry industry since 1904

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