Birds of a feather block together
O f the five countries that make up the supposedly free-trade area of Sacu – the Southern African Customs Union, comprising South Africa, Botswana, Namibia, Swaziland and Lesotho – the only one of these that another could export poultry to, in theory, is South Africa.
After more than 100 years of free trade and a customs union, there should be free trade in poultry products. But for years all the smaller countries have maintained import restrictions. Botswana has protected the local industry by applying a licensing system that gives only one firm the right to import.
Namibia, in an attempt to develop its own industry, has reportedly restricted imports to 600 tonnes.
Lesotho and Swaziland are no better than any other Sacu countries.
The war going on between South African producers and importers of low-cost Brazilian and Argentinian chicken also affects Botswana.
Because the government of Botswana only allows chicken to be imported when local producers cannot meet the demand, which is generally at Christmas and Easter, fluctuations in the price in South Africa are largely irrelevant to those consumers who stay put in Botswana.
But, Botswana has a history of chicken smuggling and, although there have been few reports about it of late, it usually happens when the prices differ substantially.
For Batswana visiting relatives and friends in South Africa, there are import restrictions on chicken. You are not permitted to bring more than six chickens across the border without a licence.
But, if the South African Poultry Association gets its way, then the trips to Rustenburg or Mafehing that, among other things, help Batswana consumers escape expensive poultry back home will soon be a thing of the past.
The International Trade Administration Commission of South Africa (Itac) will hear submissions from the paultry association, which is seeking an increase in the current 27% Sacu tariff on imported poultry from Brazil to as much as 82%, which is the maximum tariff that South Africa is permitted under its World Trade Organisation (WTO) obligations.
Moreover, with higher prices in South Africa, local producers in Botswana, who are protected by both the Sacu external tariff on imported chicken and local import restrictions, will be able to charge even higher prices.
It is no doubt for this reason that the Botswana Poultry Producers' Association so wholeheartedly endorsed the application of its South African brothers to Minister of Trade and Industry Rob Davies and Itac for an increase in the Sacu tariff.
In fact, the industry associations of all Sacu countries joined hands with the South Africans to demand even more protection — and higher profits.
Why does the South African industry say it needs even more protection? |
Chickens are the most efficient animals for transforming vegetable protein into animal protein. It is part of the reason why chicken is called the poor man's meat.
The countries where the poultry industry is most internationally competitive are those where chicken factories (they are definitely not farms) are very large.
Without their economies of scale and without local maize or soya that is plentiful, cheap and, in the very best cases, subsidised by governments, poultry cannot be internationally competitive.
Of course, political patronage also helps. Former United States president Bill Clinton was the governor of Arkansas, the biggest poultry producing state in the US.
The big men of the poultry industry backed Clinton's election and he never forgot the favour. In the 1990s when he was president, you could mess with the American auto industry but you didn't touch the chicken or turkey industries.
The problem with the South African industry is that its poultry factories are simply too small and its maize too expensive for it to be able to compete against the true global giants.
Moreover, the poultry industry does not have the sort of political clout that the American or Brazilian industries have.
The Brazilians, like everyone else in international trade, dump their exports – that is, they sell them on the export market below the prices at which they sell them locally.
It is illegal under WTO rules and, as a result, in the opening salvo of the great transatlantic chicken war, South Africa imposed high anti-dumping duties on Brazilian chicken last year. The Brazilians retaliated by complaining to the WTO.
In 2012, the South African industry certainly faced stiff competition from Brazil, Argentina and Holland. Although Brazil and Argentina are grain and poultry powerhouses, Holland's exporting ability comes from two factors.
Firstly, the South Africans agreed that European Union imports of poultry would be duty free as part of the Trade and Development Co-operation Agreement with the EU in the 1990s. Secondly, Holland has access to subsidised EU grain and so can compete with Brazil and Argentina.
Reading the South African Poultry Association's submission to Davies is an eye opener. Imports over the past five years have doubled. The reason is simple – for example, in 2012, whole Argentinian chickens were being landed in South Africa at R6.83/kg.
Shock and anger
That was the estimated price at the port of Durban after the payment of shipping, insurance, import duty and value-added tax.
This low price was meant to evoke the sympathy of Itac and the minister but it evoked shock and anger among consumers and raised competition issues.
If the submission is correct, then why are the retail prices for poultry as high as they are?
If you add a 25% margin on to the landed price, then imported whole chicken should retail for no more than R10/kg for whole birds.
Of course, this raises the related question that, if South Africa, which is considered regionally to have giant poultry factories and a huge maize-producing sector, cannot compete internationally, how can any of the other countries of Sacu, and even those of the Southern African Development Community, ever be globally competitive? The answer is that they cannot in the foreseeable future.
But this is still not enough reason to dismantle the poultry industry too early. Firstly, things change and those who were competitive today may not be tomorrow.
Governments, among other things, have to balance the interests of consumers with those of producers, which is why Botswana still protects an industry that will probably never be weaned off tariffs.
So why not bring it to an end now and ease the consumer's suffering? Governments only tend to liberalise trade when employment and growth are expanding so that those who are laid off from inefficient industries such as poultry can easily find jobs elsewhere. The day will certainly come, but for both South Africa and Botswana it is not likely to be in the near future.
So Itac and Davies will almost certainly raise the Sacu poultry tariff, perhaps not to the extent the industry wants but enough to allow Davies to say he is protecting both jobs and consumers – both important before an election.
Meanwhile, Sacu consumers will continue to yearn for the day when it is the poultry that is being plucked and not them.
These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed