MIKE SCHUSSLER: Let’s call the miraculous price-shedding travelling chicken what it is: dumping

Whenever complex trade issues hit the headlines, conflicting voices attempt to break down dense regulatory and fiscal information into simplified arguments, which is not always helpful in enlightening the average man in the street.

I saw this again in Peter Bruce’s attack on the application the SA Poultry Association brought to the International Trade Administration Commission (Itac) for anti-dumping duties on Poland, Denmark, Ireland, Spain and Brazil (“Poor chicken industry, from a sweet to a sweat spot”, March 3).

A complex issue indeed, as each of these countries presents a unique set of behaviours with regard to exports. The EU countries have some similarities, so let’s leave Brazil for another day and look at EU poultry prices in their home countries from farm to market, to see whether local SA chicken producers are fair in asking for protection from the government.

Bruce should take note that in trade, and particularly agricultural trade, all is not what it seems. One must be a little naive to think Europe, which has €60bn in subsidies via the Common Agricultural Policy (Cap), would not seek to look after its market by keeping most importers of competitive agricultural goods out of the EU. The Cap furthermore ignores the rules of supply and demand and is hugely wasteful. It leads to over-production, forming mountains of surplus produce that are either destroyed or dumped on developing nations, undermining the livelihoods of farmers there.

The good thing is that Europe therefore also produces a lot of data on farm prices and agricultural prices. For chicken, one can go and find the price for nearly every EU member for broilers (as chickens are known before they are processed into the chicken we eat). Interestingly, despite this support, the market prices of chicken in the EU are all more expensive per kilogram than they are in SA. Over the last year, Poland was 11.9% cheaper than SA. At the other end is Denmark, at 96.6% more expensive than SA.

But we are here and Europe is over the ocean, and that means transport costs must also be taken into account. For transparency, the latest average broiler price for SA (year to November 2020) was R23.50/kg, and in the EU (year to February 2021) the average rand price was R35/kg (ranging from R20.70/kg in Poland to R54.80/kg in Germany). So, yes, SA is a little more costly than Poland, which however benefits from the Cap at broiler level. These figures do not incorporate EU Commission data, which shows that slaughter adds 30c–40c/kg at the factory level.

Just the sea freight costs from Rotterdam to Durban, excluding land transport fees and customs duties, is R1.61/kg. The lowest-price whole chicken with just sea freight added would be R22.60/kg. A frozen Polish chicken would have to cost at least R22.60/kg when offloaded in Durban. We have not added the costs of health certificates, or any health-inspection costs or tariffs to this price. This is truly the lowest cost at which one could unload a kilo of frozen chicken in Durban.

So Polish whole chicken could land under ideal conditions at a price not far off the SA chicken production cost. Yet when one looks at the import price of fresh chicken in SA from Poland over the last year, as recorded by the UN trade arm, it is R18/kg (year to December 2020). Somehow our Polish chicken has managed to lose R4.60/kg on the trip over!

This miracle loss not only applies to Polish chicken — it is surpassed by Spanish whole frozen chicken, which loses R13.30/kg on its way here. Irish chickens lose R27.40/kg on their way to SA, but the miracle cost-shedding winner is Denmark, which drops from R46.20/kg, adds sea freight charges of R1.60 (which should bring it to R47.80 in total), but manages to land in Durban at only R9.10/kg!

I think South Africans must ask why Europeans are so kind as to discount their chicken by between 20% and 81%. This kindness is in fact called dumping, as the money is made elsewhere, but more about that later. International rules are such that you cannot sell a chicken in another country for less than you do in your own country. When that happens it is not kindness, it is open war against our chicken producers.

Never mind that we get the chicken parts such as legs and thighs that European retailers sell at a quarter of the price of chicken fillets, while our producers are not allowed to sell their chicken fillets in the EU. In France, for example, chicken fillet retails for R180/kg while in Italy a year ago it was well over R230/kg. If you get six times the price for fillet, and huge risk support in that government ensures markets and often pays out for risks caused by diseases, you certainly have an advantage already.

But back to the main argument — these examples refer to whole birds and show very clearly that EU countries are selling whole frozen chicken here at prices lower than what it costs their farmers to produce the chickens. What this does — and this is inarguable — is destroy SA livelihoods, not only taking jobs away but also placing SA’s current account at risk with all the negatives that causes.

Moreover, our chicken producers are rural or semirural and are not just providing jobs in these areas but are often also helping to keep local government afloat. In the EU, governments provide their producers with all manner of assistance. In SA, by contrast, producers can’t necessarily even rely on municipal services such as reliable water supply, and sometimes have to provide these in the communities where they operate at their own cost, on top of having to deal with numerous other uncertainties.

I could go on, but let’s leave you with this thought: to get our Polish chicken from Durban to the big Gauteng market where it is probably headed, one needs to factor in container rentals, which would add another 31c/kg. Also, road freight costs, and don’t forget the unavoidable costs of customs, health inspections, insurance and tariffs where applicable. Adding a few cents per kilo here and there for these unavoidable costs of getting Polish chicken to market, and it is not going to beat domestically produced chicken on cost.

The bottom line is that SA chicken is produced efficiently and can compete with ease on a level playing field. As an industry that contributes hugely to the fabric of SA society and the economy, it deserves our support for whatever measures pave the way for further growth. Calling that protectionism and waving red flags in protest is not only irresponsible but is tantamount to Africa handing over its food security to its former colonial masters and trusting them to do right by us.

• Schussler is founder of economic research house economists.co.za.