EDITORIAL: The fox in the hen house
The main challenge facing South African poultry producers is that, between them and their international competitors, the playing field is not level
The long and turgid chicken saga continues, with the government announcing at the weekend that it had initiated a process to develop a shared response to the "crisis in the poultry industry" and the country’s second-largest chicken producer announcing it would shed half its workforce in its efforts to respond to cheap chicken imports from the EU, US and Brazil.
Whether or not cheap chicken imports are indeed a "crisis" is entirely a question of perspective.
For the three companies that dominate SA’s chicken industry and cannot seem to produce competitively, the imports do seem to be a crisis, if the strident lobbying is anything to go by. For the thousands of workers who have lost their jobs or whose jobs are at risk, they definitely are.
But for South African consumers, cheap staple food imports are anything but a crisis. Indeed, the trouble with chicken, which is the main source of protein for millions of poor households, is that it is not nearly cheap enough. Poultry prices, mainly frozen chicken, increased by 6.4% in the month of December alone, according to Statistics SA, which cited poultry price inflation as one of the reasons for the higher than expected consumer price inflation rate in December.
This surely has much to do with the 13.9% safeguard duty SA imposed on EU imports at the end of 2016, when the focus turned from US chickens (the subject of which had prompted tough trade talks between the US and SA) to European ones.
Theoretically, with the drought ending and maize prices due to come down, the cost of feed should decline and chicken price inflation should subside. But that is almost certainly too much to hope for — and the poor will be the poorer for it.
The clash of interests between producers and consumers in this industry highlights how contested and difficult the issue of tariff protection for domestic industries is. SA recently had tough talks over antidumping tariffs for steel. But whereas in steel (and earlier in textiles) SA has to compete with a China that has excess capacity, state subsidies and repressive labour practices, in chicken the competition with which local producers cannot deal is from the EU and Brazil — hardly jurisdictions with low labour costs.
So, while there may be a case for a degree of tariff-protection, there clearly is something wrong with SA’s chicken industry if it is so constantly in trouble and so stridently lobbying for a degree of protection that cannot possibly be in consumers’ interests.
As economist Neva Makgetla has pointed out in these pages, per-person chicken consumption in SA has more than doubled since 1994 and relatively restrained chicken price increases helped. Chicken is one of the few basic foods that has not seen large real price increases in the past 15 years, and that was helped by chicken imports that made the meat (especially frozen chicken pieces) accessible for poor households.
Makgetla cited the high level of concentration in the South African poultry industry and its supply chain as a likely culprit in SA’s "scarily high" production costs, arguing that poor households and workers end up paying the price for the inefficiencies of dominant companies.
Last Thursday, Competition Commission deputy commissioner Hardin Ratshisusu also pointed in these pages to the industry’s highly concentrated nature and the barriers to entry across the value chain. He suggested the industry’s challenges were much broader than import penetration alone, and while increasing import tariffs might provide short-term relief, unless local producers and policymakers tackled the challenge of inefficiency urgently, the industry will not be sustainable or competitive in the longer term.
We can’t help but agree.