/ 28 April 2016

No cheap chicken, only fat margins

No country has ever imported itself to economic growth
No country has ever imported itself to economic growth


I wasn’t invited to the MOAB (mother of all braais) held last week by United States ambassador Patrick Gaspard to celebrate the return of dumped US chicken-leg quarters – a consequence of which was renewed African Growth and Opportunity Act (Agoa) trade concession benefits for our agricultural exporters.

Now, why wasn’t I invited when Donald MacKay, whose glib slip across the truth in a recent Mail & Guardian opinion piece will linger on in many minds long after the MOAB’s ashes have been discarded?

As MacKay (representing importers) and I (representing the South African poultry industry) often compete for the truth in submissions to the International Trade Administration Commission of South Africa, perhaps the M&G is actually the right place for the MOATPD (mother of all trade policy discussions).

No country of any size has ever imported itself to sustained economic growth. Trade is an exchange; both countries need products to exchange before trade becomes a developmental vehicle – or else it is simply a fiscal and financial deficit.

Today, if you want a space in the competitive global economy, you either make things or provide services. Our national trade policy aims to encourage local production of a range of products to sustain existing jobs and create new ones, and to help effectively integrate our economy into an often distorted global trading environment.

We are all part of a global and interconnected economy. Just as we are grappling with the potential loss of our steel industry, so is the United Kingdom. In which country would the loss of such an industry cause the most social harm? The answer is quite clear: it would be us, because our economy is much less diverse and sophisticated than the UK’s and therefore less able to absorb shocks to the system. In both cases, the underlying problem is the same: overproduction in China and the realisation that this overhang will not disappear any time soon.

For all the products MacKay lists, the majority, or near-majority, of all production is local. It makes more sense to consider the effects of government support when the picture is more nuanced. Why, for example, is there no tariff on rice imports but there is one on wheat? Simply because we have never successfully produced rice, but we used to produce most of the wheat needed in our country (although now we produce about half of our requirements).

Positive explanation
So what caused the change? A positive explanation is that South Africans are wealthier now than they were pre-democracy, so more of us are moving away from maize as our only source of carbohydrates. Another explanation is less positive, namely that our development of wheat cultivars has slowed post-democracy, weather patterns have changed and the brutal economics of farming make it less profitable to farm wheat. So should we simply import – and be damned?

To answer that, it is important to understand that it can make economic sense to produce something locally if the net social benefit outweighs the economic cost. Wheat is an example of this, and the National Agricultural Marketing Council looks at a range of agricultural commodities in this way. Nearly all that MacKay expects to have seen at the MOAB are products fairly low down on the technology scale.

With the educational deficit still so prevalent in South Africa, where does MacKay think the many undereducated and underskilled South Africans will find work? Where will they find money to buy imported products? The fact is there is no such thing as cheap food if you do not have a job because any food, at any price, is rendered unaffordable.

It is also obvious that if all are to have a chance at a better life, more disposable income needs to pass through the hands of more South Africans. This suggests that the cost of most things needs to go up, because it is unlikely that productivity gains will outweigh price increases in the short term so that higher wages and salaries can be paid to more South Africans.

This brings me to the fallacy of the “cheap food” mantra so often trotted out by the meat importers. The main chicken import into South Africa is bone-in chicken portions. Unlike the favoured breast – or white – meat, these cuts are not wanted in their home markets, and get sold to the poor wherever a country is willing to accept them.

In South Africa, these imports mostly come from the European Union because the trade development and co-operation agreement made these products zero-rated for tariffs from 2012, although the tariff reduction started earlier. In 2009, the EU supplied about 0.5% of the products; now it supplies more than 80%. This happened even though the EU is considered one of the highest-cost poultry producers in the world.

These products make up a relatively small part of all chicken eaten in South Africa. Most middle- to upper-income earners – certainly, most M&G readers – are unlikely to have imported products pass their lips, given these are generally sold in less formal retail environments. Paradoxically, they are also sold for at least as much as the local product, if not more. There is no cheap chicken for consumers, only fat margins for people whose business is selling imported products to poor people.

Bitter complaints
So why are local producers complaining so bitterly? Well, there is nothing stopping us from producing these products, other than our ability to afford to produce them – in much the same way that South Africa cannot afford to produce most of the other products MacKay lists at the prices at which they are imported.

Excise duties – or sin taxes, as they are more colloquially known – intend to achieve a clear social purpose, such as drinking or smoking less by making alcohol and cigarettes more expensive. In both cases, the state would not be able to ban these products, but instead applies measures to try to lessen the harm they cause to health and to the economy. For MacKay to conflate sin taxes with an argument on trade policy is underhand and disingenuous.

Though reluctant to criticise the elderly, MacKay’s comments about the Southern African Customs Union rules reflect the deal that the rest of the club had to accept: let South Africa develop and we will pay you for the privilege through customs duty transfers. The Namibian company involved has simply found a loophole in the system, not unlike many importers, as it so happens.

The real issue here is about the application of trade policy. If South Africa cannot use trade policy to help our country grow its productive base, then what purpose does it serve?

When determining trade policy, the correct position is to weigh the positive and negative implications of corrective (anti-dumping) or protective (normal tariffs and safeguards) measures – and then decide on an appropriate course of action.

This is what the International Trade and Administration Commission does for a living. So if anyone thinks the commission’s determinations are flawed, present evidence – not the soft-shoe shuffle of the dodgy card game that MacKay dealt out last week.

PS: I assume it is a typographical error, but as at the end of February 2016, imports of dumped US bone-in portions totalled only 3 693 tonnes (MacKay’s piece cited a figure of (177 000 tonnes), a mere 12% of the total imports of bone-in portions for the January and February period.

Kevin Lovell is chief executive of the South African Poultry Association.