VAT-free chicken products can boost sales by 10%, says industry

The SA Poultry Association (Sapa) which indicated earlier this year that it would, once again, apply to the government to exempt certain chicken products from VAT, says this would deliver substantial benefits for poor households and the poultry industry.

Sapa CEO Izaak Breitenbach told journalists on Thursday the industry, which employs about 146,000 people, would benefit from an estimated 10% increase in sales if products such as offal and frozen chicken were zero-rated. This could assist growth in the local industry, he said.

“The benefit of this will be enormous as it will reduce the price of qualifying products by 15% and give malnourished people access to chicken products,” he said.

Sapa hopes to make a submission to the government by November.

The industry was still deliberating about exactly which products it would like to see exempted from VAT, but Breitenbach said it was “gravitating” towards those products favoured by poorer households such as offal products — necks and livers for example — and frozen chicken.

Exempting these products from VAT would have a “substantial” impact on the fiscus, he said. “But this can be motivated by the fact that it will provide substantial relief for poorer consumers.”

Chicken accounts for about two-thirds of the meat consumed in SA. When the Treasury last updated the list of zero-rated food products in 2018 it considered including certain chicken products but ultimately resolved that this would be too costly.

A report published at the time said the zero-rating of individually quick-frozen chicken (a product that is disproportionately consumed by low-income households) would cost the fiscus R2.1bn in foregone revenue.

The panel that considered products to be recommended for zero-rating was not able to reach a consensus on whether individual quick freezing chicken portions should be included because they were concerned the benefits would be captured by some local producers without bringing substantial benefit to low-income households.

According to Breitenbach, the industry would, in its new submission, clearly state the intention for the zero-rating benefit to be passed through to consumers.

In addition, he said, since the previous submission in 2018, the government has put in place nine anti-dumping duties on imported chicken products — the benefit accruing to the fiscus from these duties could help offset losses that would be suffered by making some chicken products VAT free.

Business Day reported earlier this month that prices for certain chicken products had started moderating as global supply continued to recover from disease outbreaks such as avian influenza, which saw chicken prices spike in 2023.

Marlene Louw, senior economist at Absa Agribusiness, said while the importance of food affordability was acknowledged, it was also vital to note that including certain chicken products in the list of zero-rated food items could have unintended consequences — for example, relative price changes of products in the meat complex were likely to alter consumption patterns, which could affect prices and margins of other products in the meat complex.

“Policies that support and enable efficient broiler production, such as effective and agile disease management and sound service delivery, would also limit price increases of chicken products. This would likely have a less distortive effect on relative prices and margins and contribute to providing consumers with price relief,” she said.

Breitenbach said the industry was hoping for the government to implement a vaccination programme for avian influenza which, during the last outbreak, cost the industry R9.5bn in losses.

Poultry producers were also hoping to see fast progress in opening export markets for chicken.

“We need to export. Though there has been some activity in the background, we haven’t secured access to any of the markets we want to export to such as the EU, UK and Saudi Arabia,” he said.

By gaining access to these markets local producers could increase the value of a chicken carcass by exporting cooked breast meat at a premium that would subsidise other cuts on the carcass to ultimately benefit local consumers.

erasmusd@businesslive.co.za