PAUL MATTHEW: Itac rebates have the fox guarding the chickens
A well-intentioned government intervention is likely to come to nought, with no relief for importers and consumers
There was some good news for cash-strapped South Africans in “Januworry” as they tried to keep their heads financially above water during what always feels like the longest and most expensive month of the year.
First, the SA Reserve Bank announced it would keep interest rates steady, and acknowledged that inflation was starting to ease. The second was an announcement by the trade, industry & competition department to introduce a temporary rebate on imported boneless and bone-in chicken cuts, and chicken offal. The move was intended to keep the price of chicken in check for consumers, especially poor households that are struggling to afford this vital source of protein.
The decision was published on January 26 and provides a 30% rebate on boneless and 25% on bone-in cuts of imported chicken, as well as zero rating chicken offal (carcasses, feet, heads and liver), which are the chicken products most consumed by low-income households and consumers.
The decision follows the Association of Meat Importers & Exporters of SA’s submission to the International Trade Administration Commission (Itac) in November calling for rebates to be applied to imported chicken. While imports have been declining over the past few years, the 2023 Avian flu outbreak placed renewed pressure on local supply, with consequent price increases. None of this was good news for consumers.
Currently, imported chicken carries a duty of 62% for frozen bone-in and 42% for boneless chicken pieces. Economists agree that import duties are an extremely regressive form of tax, meaning they affect poor consumers most directly. This is especially true for chicken, which remains the most affordable and essential source of protein for consumers, especially those struggling to meet their families’ basic food security needs.
The need for the rebate was publicly supported by Prof Lawrence Edwards of the Policy Research in International Services & Manufacturing Unit at the University of Cape Town’s School of Economics, who argues that it is pro-poor. Edwards estimates that for every 10% increase in the aggregate import price from duties, there is a 4.8% increase in the consumer price of frozen chicken.
Consequently, we were encouraged by the minister’s decision in 2023 to consider a rebate. It showed that the government is alive to the plight of poor South Africans. The government’s mandate is to act on behalf of its citizens, and this requires it to do all it can to ensure that the country is food secure, and that the people are able to afford poultry. We were even more encouraged by the granting of the rebate by the minister and Itac in February.
However, after a closer examination of the Itac report and the guidelines, we are concerned that the rebate is a sham that will provide little relief to importers or consumers. This is because the Itac rebate guidelines are complicated and technical, and, in practice, it is unlikely many rebates will be granted.
It was for this reason that in our submission to Itac on the rebate we proposed the granting of a simple 12-month rebate, time-bound but without any other complicating justification. This proposal was ignored, and the Itac rebate guidelines include a quota system, historically disadvantaged individual requirements, and a process to justify shortages.
While on paper these requirements may seem straightforward, they will not be when applied in practice. For example, the guidelines require that before granting a rebate to an importer Itac, in consultation with the director-general and the agriculture department, will need to determine if there is a shortage of poultry.
The question is: where will they get the local poultry supply statistics from? The only answer can be that they will get them from local producers, who have been vehemently opposed to the introduction of rebates. Who will check the industry figures?
The introduction of a requirement to prove a shortage for each rebate application is strange, bearing in mind that Itac has already recognised there will be shortages and price increases this year. In the report announcing the rebate, Itac estimated a shortage of about 172,000 tonnes of poultry for 2024.
To be clear, it means the country will not be able to produce sufficient chicken to meet local demand, and that imports will play a critical role to prevent shortages, which always lead to price increases. Itac also noted a continued upward trend in pricing over 2022 and 2023, and predicted price increases for 2024, noting that the 2023 Avian flu outbreak will have an extended influence on demand and supply.
So, once again we see a situation where the big local poultry producers control imports, and therefore control price. We understand that government wants to support domestic producers, and we endorse the deputy president’s recent call to provide financial assistance to domestic producers affected by infrastructure failure and Avian flu. However, government’s overall mandate is to act in the best interests of the people of this country, in other words consumers, and we do not believe the rebate process is in the best interests of anyone but local producers.
On balance, we are concerned that the likelihood of any rebates being granted is remote, and a well- intentioned government intervention will come to nought. This means there is no relief in sight for importers, food security or cash-strapped SA consumers, and “Januworry” is likely to become “Februworry”.
Matthew is CEO of the Association of Meat Importers & Exporters of SA.
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