Opinionista Ayabonga Cawe 6 January 2016

AGOA: What are the real issues?

We seldom see joint press conferences of three Ministers so early in the year. In a unique display of inter-ministerial concern and communication, we saw Trade and Industry, Health and Agriculture Ministers in a joint presser about the poultry trade issue which has become rather topical over the last few months. The importance of the issue goes without stating, with the trade benefits that come with the Africa Growth and Opportunity Act (AGOA), including preferential access to one of the world’s largest markets, the United States, under threat.

With the deadline of December 31 already passed, it was Rob Davies and his footie analogy, which had journalists in a tailspin when he indicated that we are ‘already in extra time’. In a rare admission of the seemingly intractable dilemma we find ourselves in, with billions in trade on the line, Minister Davies indicated that it was the United States that could ‘blow the whistle’ on negotiations at any point. If the US called time on the negotiations, he added, it was not for South Africans to prescribe which products would be excluded from AGOA. When a journalist asked whether wine would potentially be excluded, the wide reaching implications of a dispute about chicken and other agricultural products, hit closer to ‘home’. (If the Cape Winelands are home that is, and your kith and kin export boxed wine to the United States.)

Wine aside, it is the poultry issue which has become a key leverage point for US trade negotiators who feel that American producers have been unfairly treated by South African trade policy. Why?

The disagreement relates to the blocking over the last fifteen years of bone-in chicken imports from the United States, following a 1999 court case judgment accusing the United States of dumping chicken into the local market. US consumers mostly consume white boneless chicken portions like fillets, resulting in a surplus of bone-in chicken, which US farmers are keen to export. The imports of bone-in chicken often sell below the price of its locally produced competitors.

An agreement was then reached in June 2015 between industry bodies in the United States and their South African counterparts, in Paris. South Africa compromised on bone-in chicken imports to the tune of 65,000 tons annually, in order to be included in AGOA for the next ten years. However, there were outstanding issues such as sanitary and phyto-sanitary standards on which, it seems, South African negotiators were unwilling to compromise. The source of concern, aside from the avian flu epidemic, which has been resolved, is a challenge over salmonella and the treatment of porcine reproductive and respiratory syndrome in US pork. Subsequent to the June Paris meeting, a team of South African and US veterinarians have been in discussions to finalise health protocols required to end the decade long impasse. It is impatience with this process which prompted the US Congress and its executive to place more pressure on South Africa by threatening to withdraw the country from AGOA. The potential withdrawal of South Africa from AGOA would not only affect the poultry industry, but could potentially affect other sectors such as automotives, citrus and wine, which have benefitted from preferential and duty-free access to the US market since 2000. Exports to the United States stood at $8.5 billion in 2013, with thousands of associated jobs.

The US is the largest producer of poultry in the world and the second largest exporter. Americans, according to an Oxfam report, consume 40.37kg per capita annually, and the industry in the United States over the last fifty years has grown to a $50 billion industry. It therefore stands to reason, that this is an important political economy matter in the United States as well. In addition, as trade expert Donald Mackay noted in Business Day, it is also an access to market issue:

This is not about chicken: 65,000 tons of chicken to SA will not even register in the US, which produces about 13-million tons of chicken a year. This is about access to a market. This is about the fear of SA nationalising US-owned security companies through the Private Security Industry Regulation Amendment Bill. This is about SA slagging off the US publicly but then expecting market access to the world’s largest consumer market’

There have been two major arguments that have framed the discussion on the issue. On the one hand, many have argued that the threat of losing AGOA status for South Africa, threatens jobs, in particular in the agricultural and auto sectors, whose exports enjoy duty-free access to the United States market. Minister Davies made the example of the impact a blanket suspension of AGOA, extended to motor vehicles, would mean for the sector. A BMW sedan produced in Rosslyn outside Pretoria, in the worst case scenario, would face extra duties of about $1,000 on a $40,000 vehicle exported into the United States.

Moreover the chicken coming from the US, at lower prices is beneficial for low-income black consumers for whom poultry is the main source of protein. On the other hand, many have argued that this is in indication that the South African poultry market requires restructuring, as it is clear that our producers are able to supply all of the domestic demand, with no need for imports.

The question then becomes, is it cost-effective to do so, and what will this mean if it implies higher prices on local consumers? The response to that issue is as much an internal as it is an external terms of trade issue, as Kevin Lovell of the South African Poultry Association says in his letter to Business Day;

The issue, though, is not that we don’t produce enough chicken, but that we simply cannot afford to do so. There is no need for SA to import any chicken at all, but we are forced to do so because of distorted pricing’

The debate then oscillates, between those who defend the agreements made as part of AGOA and the associated benefits for local industry, and those who argue that this presents an opportunity to transform the industry to supply the local consumption needs and effect much-needed transformation in the sector. The latter argue that such restructuring would have to confront the low levels of protection the sector enjoys, which makes South African exports and local production uncompetitive relative to the subsidised imports from Brazil and the United States.

But perhaps we should ask, were the sector to receive greater protection from imports and possibly exit AGOA, who would stand to benefit: Producers, employers or local consumers? More importantly what does it mean for working conditions of people working in the sector and the development of small-scale black poultry producers? This is our concern.

With regard to the conditions of workers and under which the chickens are produced, the poultry sector in the United States is characterised by low wages, low rates of unionisation, potential for disease outbreak and the employment of vulnerable communities such as the immigrants and minorities. Also as the Lives on the Line report by Oxfam in the United States indicates, the human cost of producing chicken in that country involves a quarter of a million workers enduring dangerous working conditions and poverty-wages every day. From slaughterhouse to fast food retail, the story is rather similar. Similarly, according to a Johns Hopkins report on the health and environmental implications of U.S. meat consumption and production, “almost all of the meat, dairy products, and eggs produced in the United States come from industrial food animal production (IFAP) operations that confine….as many as hundreds of thousands of chickens at a single faculty – and produce enormous amounts of animal waste.” An additional concern is whether or not the proceeds from the ’surplus’ bone-in chicken sold at a discount in the South African market, will be shared with workers in the United States in the form of higher wages or benefits, or whether it will accrue to the poultry oligopoly?

To complete this picture, one needs to understand the effect the potential courses of action will have on workers and consumers in South Africa. It is well documented, that should South Africa not concede to the demands of the US Congress significant job losses may occur in other sectors. However what is less clear is what impact waiving some of the health concerns might have on the consumers who are likely to have the discounted bone-in chicken pieces on their dinner tables.

This debate is also a timely one, as it allows us to unpack a wide range of questions around the governance of the global food system. Firstly, the issues around phyto-sanitary standards in multilateral and bilateral agreements require greater scrutiny. Would the United States import chickens from South Africa if the threat, perceived or real, of avian influenza, salmonella or porcine syndromes posed a danger to American consumers? Secondly, are South African consumers willing to argue for the benefit of lower cost bone-in chicken from the United States, whilst understanding the human and potential health costs of this ‘cheap’ chicken, from farm to fork?

Lastly, there is a blanket acceptance by producers in the US and in South Africa that the oligopolistic industrial framework of mass producing food is the only way to ensure food security. How then do small scale black producers access markets, when even the SAPA CEO notes that; “Small, not just in poultry, but in farming, is not good; it represents a utopian view of the world,”? It takes a look at the composition of the technical committees of the SAPA, to realise that the biggest lobby for the poultry sector is largely made up of some of the biggest names in the production, fast food and grocery retail sectors. Similarly in the United States, the industry is dominated by four big companies who control 60% of the market. If ‘big’ is the only ‘game in town’, then the question of whoever benefits from how this trade furore is resolved, is of little consequence to small scale black farmers. The suggestion by SAPA to designate poultry for public procurement may be cold comfort for black farmers, when a broader systemic discussion about the carving of the 1.9m tons worth of the local market is required, before we even discuss the export market. Such a broader societal discussion needs to bring together consumer advocacy groups, large and small producers, workers organisations and the government. It may be the only way to confront the real questions on the role of the agricultural sector as a whole in food production and transformation, and not only when ‘subtle’ threats from Uncle Sam remind us to move with greater urgency towards what we’ve agreed and committed to. DM

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