After the Bell: SA’s industrial policy is a cluck-up
The idea that small-scale, local chicken farmers are somehow going to be able to survive the brutality of the global poultry market shows just how out of touch South Africa’s administrators are.
For some time now, there has been a public relations war going on between the Association of Meat Importers and Exporters (AMIE) and the SA Poultry Association.
As a journalist, it has been harrowing because both sides have been pecking at each other relentlessly. Obviously, the feathers have been flying, and the government has struggled to lay an egg on the issue, etc.
Clearly, I am trying to utilise every conceivable pun available, and trust me, that has been only the only fun thing about this debate.
The position of the Poultry Association is not just that it needs protection from international competition, but that without protection, the industry will die a horrible death. And this will be no small matter because it claims that about 100,000 people are employed throughout the value chain.
Chicken is perhaps the most popular protein in the diets of South Africa’s residents, and that’s very apparent in the number of birds slaughtered every day, which is about three million.
South Africa’s also not a terrible producer, and is competitive internationally. It produces chickens at about the sixth lowest price per kilo in the world.
The AMIE and its forerunners argue that the poultry association’s claims are overstated — visible by the fact that South Africa’s chicken imports are only about 10% of local production.
The AMIE points out, very trenchantly, that having high tariffs on imported chickens tends to increase the retail price, which obviously hurts consumers.
Initially, the government supported local producers, but it did so conditionally — confirming Trade Minister Ebrahim Patel’s long history of granting industry requests but simultaneously squeezing concessions out of them, a little like a fox guarding the hen house.
Hence, in 2020, the poultry master plan was announced by the Department of Trade, Industry and Competition (DTIC) and some quite hefty import tariffs were introduced, particularly on five exporting countries.
The local industry celebrated, but the idea was not only to protect the existing industry but to expand it by boosting local demand and enhancing exports.
At that point, the local industry promised to invest about R1.5-billion in the processing facilities in the country, and a further R1.6-billion in farming in support of the idea that it would increase production by 10% to 20% by the end of 2022.
But the DTIC insisted on the myriad of things it always does: transformation, support for small players, and higher wages for workers in the industry. I think the local industry was generally supportive of all these measures, but frankly, I always find these demands slightly depressing, however well-intentioned they are.
Brazil is in the lead
The reason is that the global chicken industry is huge and international and absolutely brutal. Over a long period, Brazil in particular has simply been winning this race.
Chicken production is very dependent on feed costs and Brazil has very deliberately and sensibly nurtured very large maize farms.
The idea that small-scale, local chicken farmers are somehow going to be able to survive in this market shows just how out of touch our administrators are.
Brazil succeeded by going precisely in the opposite direction and is now not only the largest international exporter, but it exports almost double its nearest rival, the US.
The tariffs did have one upside: local producers started making a profit again — sometimes quite a large profit, it turns out. The biggest local producer is RCL. In 2019 and 2020, it was in dire straits. But since then, the company has bounced back with a vengeance.
Well, the envisaged expansion period has now arrived, and not to put too fine a point on it, it was a bit of a cluck-up. I haven’t been able to find up-to-date figures on South Africa’s chicken production rate, but I would be very surprised if that 20% target has been hit (please do let me know if anyone is tracking this).
The problems have been all the familiar ones: transport issues, increasing feed prices, and, of course, rolling blackouts. The industry had to cull about 10-million birds recently because of that little problem.
For reasons that are not exactly clear, in August 2022, the DTI suspended the “anti-dumping” duties on chicken meat it had imposed earlier. The countries included are Brazil, Denmark, Ireland, Poland and Spain. The country that matters here is Brazil.
The reason given was the government’s concern about rising chicken prices. That’s politically understandable, and importers and free marketeers are delighted. But it does mean that the poultry masterplan is now, well, on shaky ground. If the government is not keeping its side of the bargain, does that mean the industry is off the hook on its commitments too?
Be that as it may, the larger issue is that there has been a global reassessment of industrial policy, particularly with the Chips Act in the US, and other legislation around the world to enhance green policies.
This is a fantastically complicated, contradictory and contested area, but what does seem to be agreed is that the way to conduct industrial policy, if at all, is not through tariff protection since it tends to encourage stasis, not change. Instead, the way to do it is to enhance an industry’s capacity.
South Africa, for example, has a free trade agreement with the European Union (EU). But South Africa’s chicken is not exported because South Africa does not meet the EU’s health and safety standards.
That may be protectionism on the part of the EU, but, more likely, there are a whole bunch of government institutions here that are not working properly to monitor and ensure standards for export.
Overall, I suspect South Africa’s interpretation of “industrial policy” is just not the same as what is being touted internationally – and that is why – promise, last one – the chickens are coming home to roost. BM/DM