BUSINESS MAVERICK

Feathers fly in poultry tariff standoff

By Ruan Jooste 27 August 2019
Caption
The SA government seems to be lining up to support big poultry industry players and simultaneously trying to make things harder for new entrants, says the writer. (Photo: Gallo Images / Thapelo Maphakela)

The SA Poultry Association has lobbied the International Trade Commission of South Africa to increase import tariffs on chicken from Brazil to a staggering 82%. Obviously, offshore associations are opposed to the plan, but the sentiment is also shared by local importers and exporters.

The Department of Trade and Industry has said it will announce a decision on the chicken tariff issue by the end of August, but it is not one it is taking lightly. Minister Ebrahim Patel told reporters ahead of his budget vote in Parliament in July that striking the right balance between preserving the local industry while keeping poultry affordable would remain a challenge.

The South African National Consumers Union told Fin24 the price of chicken could increase by between 20-30% if the proposed tariff change was imposed.

Furthermore, opponents of the form of protectionism say this approach has not only failed to defend the envisioned goalposts in the past, but the debate is drawing the country’s eye to the wrong ballgame altogether.

In February, the SA Poultry Association (Sapa) reported that chicken imports had surged to a new high in 2018, while South African chicken importers have dismissed Sapa’s claims as a tactic to protect its own interests.

Paul Matthew, CEO of the Association of Meat Importers and Exporters (AMIE), says Brazilian imports have become the scapegoat excuse for all inefficiencies of the local system. He says they have challenged Sapa’s application.

Sapa’s main members include listed RCL Foods and Astral.

South Africa has a long history of protectionism, but, tariffs aside, free trade enhances efficiency by encouraging competition,” Matthew says. “Eliminating imports altogether, there will be no pricing competition at all.”

Furthermore, South Africa has different tariffs for different parts of chicken and import taxes are not consistently applied or enforced across the board either. Chicken is imported from Germany, Britain and the US. But, in some cases, tariffs are circumvented by relaying exports via non-duty countries. A deal was struck in 2015 to allow a quota of US products into SA tax-free, which further skews the competitive landscape. The deal was meant to placate the US after it threatened to withdraw South Africa’s benefit under the African Growth and Opportunity Act (Agoa).

We are not opposed to tariffs in principle, but they need to be reasonable,” says Matthew.

Increasing the tariffs to 82% from the current 37% and 12% will close the market to imports, as it will render most imports unfeasible. Most critically, an 82% tariff will allow the local chicken industry, already dominated by a few large conglomerates, to further consolidate the domestic market, thereby decreasing competition and leading to further price increases.”

Brazil is not dumping chicken in South Africa, it is supplying quality, unbrined chicken, sold at a price comparable to that of South Africa’s, and helping to meet local demand. This ensures that healthy competition is maintained, to the benefit of South African consumers, Matthew states.

A newly established industry body called the Emerging Black Importers and Exporters of SA (Ebiesa) agrees on the price risks for consumers, but adds that the tariff applications are deliberate actions to keep emerging black business from participating in the local industry.

Sapa is creating the wrong impression that imports, no matter what the circumstance or source countries are, negatively impact all related business back home,” says Unati Speirs, chairperson of Ebiesa.

This is not a true reflection of the facts, she says.

She says the measures are not creating an opportunity for new entrants, nor serving as a catalyst – or even incentive – for SA producers to innovate or grow.

She says South Africa is not taking advantage of potential export possibilities, nor are any efforts being made to cover the loss in product availability, if tariffs halt chicken imports from Brazil.

It is estimated that imports satisfy more than 20% of the local demand for chicken.

All we have achieved is to allow an agri-industry to stagnate or shrink,” Speirs adds.

We are not in a position for positive economic development in a globalised poultry world, and import substitution will not be achievable if there is no scope for transformation.”

That doesn’t bode well for our economic disposition, in terms of global trade and our deficit, she says.

The only way to move forward is if we embrace the gap left by low production levels, by way of import substitution and adding efficiency to our export capability.

There are so many examples of how progressive trade policy around import substitution can improve the industry and it is the only way we can move the entire local poultry supply-chain forward.”

Whether the mere suggestion of a growth opportunity is enough reason to invest in the shares of Astral and RCL Foods at current levels, is a different question.

Jean Pierre Verster, CEO of Protea Capital says although the stocks seem fairly valued, he would not advise investing. SA producers have proved uncompetitive against their South American counterparts, where chickens are raised in a tropical paradise, and feed and equipment are subsidised by the government. Their inability to rule the roost is only one of the many intricacies our chicken coop has to overcome.

Best to keep your nest-egg elsewhere for now. BM

Ruan Jooste is currently visiting the international poultry and pork show In São Paulo, Brazil as a guest of ABPA (Associação Brasileira de Proteína Animal) and APEX-Brazil.

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