Tariff undercutting fails poultry and cotton sectors

At the end of August the International Trade Administration Commission of SA (Itac) recommended the renewal of antidumping duties on frozen bone-in poultry imports for selected countries in terms of the Customs & Excise Act. It stated that bone-in poultry products from Germany will face a tariff of 73%, the Netherlands 22.8% and the UK 30%.

This statement was welcomed by the poultry industry and the agricultural industry at large. If enforced, the tariffs will go a long way in securing jobs in the subsector and enable transformation and development.

However, while antidumping duties are an important step in the right direction, tariff undercutting remains a problem. We believe more can be done in terms of trade regulation monitoring and enforcement.

Field crops and poultry are often mentioned as ideal agricultural enterprises from a development perspective. The intensive nature of poultry with limited land requirements makes it attractive. Cotton, the International Cotton Advisory Committee has found, plays a significant role in poverty reduction across Africa.

Locally, these two industries have seen significant progress with transformation and development. The poultry master plan was the trailblazer for other sectoral master plans, where stakeholders in the industry agree to a social compact to achieve industry growth, with a specific focus on inclusivity and transformation.

For cotton, local initiatives have been established with success where the production of other crops was not feasible. Here the Nkomazi Cotton Co-operative in Mpumalanga serves as a good example.

Despite the strides made in these industries, tariff undercutting and export dumping remain threats that undermine growth and development. In the case of cotton, the nature of tariff lines for these products, and processed products derived from it, allow for products to be imported under a tariff line with a lower rate. For example, cotton and its associated products have the following tariff rates when imported into SA: yarn cotton 15%, woven fabric 22% and  apparel 45%.

Imports are often undercut by classifying products under a tariff line with a lower tariff.  Another issue is underinvoicing, where the tariff applied to cotton imports into SA is estimated to be 6%, substantially lower than the figures quoted above.

In the case of poultry, the dumping of EU, Brazilian and US chicken imports has been on the policy agenda for the past two decades, where dumping refers to the cost of supplying to an export market at less than production cost, or less than the price charged in local markets.

The SA Poultry Association (Sapa) has estimated that dumping margins amounted to 201% of prices charged in the local markets of the countries that are dumping. In addition, imports of chicken have grown 400% over the past two decades, comprising 20%-30% of total chicken consumption in SA. Meanwhile, growth in the local industry has remained largely stagnant.

Sapa estimates that this has cost the country 15,000 jobs. Additional issues highlighted by Sapa during the recent antidumping application were undeclared imports and imports that circumvent tariffs, in the same way as cotton mentioned above.

As mentioned, the announcement at the end of August on the renewal of antidumping tariffs for selected countries is a positive step in limiting dumping and creating a conducive environment in which this subsector can thrive. There are, however, still countries engaging in dumping that are not included in the above-mentioned announcement. Representatives of Sapa have noted that they will also apply for anti-dumping tariffs for imports from Brazil, Ireland, Spain and Denmark.

Our view is that both these industries have an important role to play in contributing to inclusive transformation, food security and employment. Annual cotton production amounts to 60,000 tonnes. However, it has been estimated that production can reach 200,000 tonnes by 2030 if the industry is nurtured and supported.

Given international disruptions such as Covid-19, there is a feeling that in the case of cotton, localisation and verticalisation are the future. For poultry, in turn, import replacement of the sizeable share of current consumption levels provides low-hanging fruit for growth and job creation.

To harness these opportunities and make growth inclusive for all, continued government interventions focused on curbing illegal imports and stopping dumping are essential.

• Dr Louw is a senior agricultural economist, and Dr Simela the business development manager responsible for transformation initiatives at Absa Agribusiness.