A few years ago, we wrote about the US-South African chicken war, just after the African Growth and Opportunity Act had been renewed by the US Congress for the next 10 years until 2025. Back then, a bit of public, albeit still-diplomatic brawl broke out between the two nations over American chicken exports to South Africa.
In real terms, this shouldn’t have been all that much of an issue. Agoa was not a binationally negotiated trade treaty, but a unilaterally granted trade concession from the US to qualifying African nations to gain the right to export their goods to America, duty-free, and there wasn’t much chicken at stake, really.
The point to Agoa was a public policy syllogism that argued increased African exports would stimulate growth in those African nations; more economic growth would lead to greater economic stability; and that stability would lead to greater democratic practice in the political life of the respective nations. Moreover, such a trajectory was in the long-term interest of both the US and the various African nations. In addition, such growth would even trigger greater imports from the US and help generate a better environment for greater US investment in those nations as well.
Then, in a side discussion — and then, eventually, a real negotiation — one that harked back to the ideals of Agoa that American businesses needed to get a fair deal in African nations in order for them to qualify for duty-free entry into the US market under Agoa’s terms, in the same way as other exporters to the continent, the US government pushed for more equal treatment of US poultry exports to South Africa. This outcome would be similar to the way poultry exports from Brazil and the EU (most especially Denmark and the UK) were being dealt with by South Africa already.
But a surprisingly acrimonious public shoving match over chicken imports ensued. It included dragging out the usual canards about the dire threat of insidious, disease-ridden imports from the US; fears chickmeat growers would be driven to the wall by virtue of this competition and then go out of business, and that would lead to thousands of employees going into permanent rural unemployment.
Moreover, there was also the use of scare tactics of labelling more efficiently produced, imported chicken meat as unfair, underhanded dumping. (To an economist, dumping has the specific meaning of selling a product at less than the cost of production in order to ensure market share for greater exploitation later on. However, in the popular parlance, that word conjures up the image of disgusting, nasty scraps being poured into a hapless country’s food chain.)
There was even the argument being made that Americans only ate the light meat breast and wing portions, leaving all that “inferior” dark meat to be foisted upon less fortunate, poorer people in South Africa. (Poor us!)
Eventually, after all this, and with the whiff of the glimmer of a possibility of the loss of Agoa access at risk (and thus the real negative effect on the export-driven profits in the automobile sector for South Africa), the SA government agreed to a quota of 65,000 tons of American frozen chicken entering on the same terms as other chicken — far less than from the other exporters, but still a real change in the chicken market landscape, as far as the Americans were concerned.
Left out of that “scare ’em to death” strategy had been several salient points. These included the fact that domestic frozen chickens were being pumped full of brine (AKA salty slush) such that consumers buying frozen chicken packs were really purchasing a plastic bag containing at least 20% salty frozen water, instead of protein. Processors actually insisted the market demanded this brine on taste grounds — almost as if a person cooking up some chicken couldn’t add salt to taste, all on their own.
Moreover, South Africa was now producing significantly less chicken than domestic customers — or potential customers — were hungry for (1,845,000 metric tons of consumption versus 1,365,000 metric tons of domestic production in 2018), and that its chicken producers were also unable to meet the demands for the product in all those onward lucrative export markets in chicken-hungry countries like Zimbabwe, Zambia, Malawi, Botswana, Lesotho, and eSwatini, among others. In other words, there really is more actual — plus prospective — demand for chicken meat than domestic producers can supply in their own.
Unati Speirs, the chairperson of the Emerging Black Importers and Exporters South Africa, explained:
“SAPA (the SA Poultry Association representing those big players) is creating the wrong impression that imports, no matter whether from Brazil, the US or EU, are negatively impacting the large local producers. This is not true. In 2018, some local producers posted bumper profits of more than R1.4-billion for the year. What is true is that this perception is being created in order to drive further protection for local producers in an already concentrated and untransformed market.
“SAPA and its members also claim that imports will destroy local jobs; however, there are also many thousands of jobs that depend on both the import and export market. The import market extends to clearing agents, employees handling processing and packaging, cold storage, transport and administrative staff. Besides the 365 direct jobs which Emerging Black Importers and Exporters South Africa’s members sustain, the historical importers employ between 10,000 and 12,000 people here in South Africa. These jobs would be at risk if tariff increases were to effectively close off the import market to Brazil, or other markets.”
Ah, but the newest variant of South Africa’s traditional producers’ association culture has now kicked in to push for a new bit of protectionism.
While the old meat board, fruit board, milk board, chicken and egg board marketing and price fixing system has largely gone away, the big domestic chicken producers (a classic oligopoly of a handful of big growers) has now reached out to the government for really substantial protective tariffs against all those alien invading chicken drumsticks. Their proposal is to increase import tariffs of 82% on all imported chicken. Wow, 82% to protect the nation from insidious foreign chicken bits.
This demand, understandably, has now generated some backlash, from a number of interesting quarters which have come together. On 17 April, the South African National Consumer Union (Sancu) and the Emerging Black Importers and Exporters South Africa warned:
“Increasing tariffs on imported chicken could hike local chicken prices by up to 32%, putting South African consumers under further financial strain and impacting food security for the poor. The South African Poultry Association, a lobby group established to protect the interests of the large South African poultry producers, has applied to the International Trade Administration Commission of South Africa for import tariffs on chicken to increase to 82%.
“SAPA’s members include RCL, Astral Foods and Rainbow Chickens. Their rationale is that imports are damaging the local industry, but the Emerging Black Importers and Exporters South Africa believes they are simply seeking to protect their profits to the detriment of consumers and emerging black importers.”
Speirs adds: “South Africans are not stupid. The large local companies have employed the same tactics against the EU, US and Brazil over the course of many years, and the modus operandi is always the same.
“First they claim that the country in question is dumping, then that their products are of poor or inferior quality, that they are costing jobs, that they are victims, and so it goes.
“This is an irresponsible campaign that completely sidelines the impact of extensive tariffs on people like us. But more than that, it has a profound food security and price impact on the poor.”
Clif Johnston, vice-chair of Sancu, added:
“Chicken is the cheapest source of protein. For many consumers, it is their sole source of protein, which they can only afford to buy occasionally. Any price increases in chicken result in extreme hardship for consumers.
“Our experience is that the imposition of import tariffs or the increase of existing tariffs eventually results in proportional increases in the price of the protected local commodities as paid by the consumer. If there is no price impact, why do it?”
A modest digression on economic theory may be in order here. Too often, discussion about the South African economy takes on one of two variants. Version one, popular with the Marxists and neo-Marxists eager to prove the essential truths of the implacable wheels of scientific socialism, makes the basic story a struggle between evil, rapacious capitalist oppressors and the poor, downtrodden class of workers desperate for enough money to at least provide for the bare essentials of life — until they can overturn this hideous imbalance.
Version two pits local producers of almost anything against the rapacious, evil machinations of foreign manufacturers, eager to capture local markets and drive all the virtuous local folks to the wall — and out of business.
Version two thus provides the justification for guaranteed floor prices and tariff-protected markets. (That is, unless you happen to have been one of the textile or clothing manufacturers or their workers who were driven out of the economy when a decision was made to throw open the local market to cheap Chinese imports a while back — presumably for geopolitical reasons.)
But what is usually left out of either of these versions are two other elements. The first is the consumers’ interest in all this, as in, we all, save for vegetarians, eat eggs and chicken, and, especially for the less well off, chicken and eggs are the primary source of protein in South Africa. Price, therefore, matters. A lot.
The second element is the basic economic truth that any established market or manufacturing sector will almost inevitably find new entrants who will challenge the old, established players. These two facts help explain why the SA National Consumer Union teamed up with Emerging Black Importers and Exporters South Africa to oppose the proposed tariff increase.
But, special to South Africa is that part of the agreement with the US about American chicken imports was that the US would set up special programmes to train “emerging” (and here we should read black) chicken and egg producers to be effective new entrants into the market with skills to compete with the big boys, and that wholesalers in this market segment would be encouraged to take up those American imports for marketing onward to the retail sector.
Up until now, according to the US Embassy, some 500 such new or aspirant entrepreneurs have received such training in order to contribute to the transformation of the old raising, wholesaling, and marketing networks.
Interestingly, one of the people who turned up to the meeting where the concerns were raised, Portia Skosana, talked to us later to say that her American-supported training had been enormously helpful to her in building her growing business of producing free-range eggs. But sadly, despite numerous requests, she had been unable to attract any attention from the SA government in her efforts. (Too busy protecting the big industry players, perhaps.)
And so, here we have a curious tale of transformation in which the SA government seems to be lining up to support big industry players who are trying to revoke the basic economic law of comparative advantage, trying to push up prices, protect their big player profits, and the low wage, dead-end jobs servicing chicken coops — and simultaneously trying to make things harder for new entrants into this traditionally oligopolistic market sector. It might well have been much better to support the new entrants and work closely with the big guys to achieve better, more effective market access up north, where there is still unmet demand instead.
Or as Nontwenhle Mchunu, the founder and director of the Mkabayi Group, a black-owned importer of chicken protein told us:
“Instead of trying to shut out our trade partners, we should be strategic in developing mutually beneficial relationships with them. Instead of vilifying them, we should learn from them. Instead of the government protecting local industry, it should be investing in the local industry to gear it up to expand and participate in the export market. Both imports and exports create valuable jobs and revenue, yet local producers continue to ignore export opportunities.”
Sometimes that old question of which comes first, the chicken or the egg, comes to mind. DM
According to the Bureau for Food and Agricultural Policy, every 10% increase in duties equals a 4.7% increase in the price of chicken on the shelf. If the import tariff increase to 82% is granted, duties on bone-in chicken would increase by 45%, which means consumers would pay 21.15% more for bone-in chicken. For boneless chicken, which currently carries a 12% duty, the tariff would increase by 70%, with the price to consumer increasing by at least 32.9%.