THE South African poultry industry is in serious distress due to the heavy influx of cheap chicken imports mainly from Europe. Recent media reports from the neighbouring country indicate that imports have put a strain on dozens of poultry farmers who feel at risk of losing business amid a threat of job cuts of up to 130 000 along the value chain by December 2017.
South African producers are worried that their businesses are being unfairly crippled by imported portions after tariffs on chicken from Europe were removed at the start of 2012. Indications are that since tariffs were removed under a trade agreement between Europe and South Africa, imports of bone-in portions, such as legs and thighs, have tripled to more than 188-million kilogrammes in 2016, according to the South African Poultry Association (SAPA).
South African farmers and labour unions also accuse the EU of dumping by selling chicken cuts at below cost, threatening local companies and jobs. EU producers make enough money marketing breasts in their home market that dark meat is sold as a waste product, they say.
“Chicken farming is in crisis and on the cusp of collapse,” Kevin Lovell, chief executive officer of SAPA, said recently. “The trigger will be when the banks stop funding. That moment is getting close. Then the industry will shrink permanently.”
According to SAPA, Europe’s share of South Africa’s bone-in chicken imports has grown to 80 percent from 0.5 percent in 2012. On the contrary, the neighbouring country’s biggest chicken producers, including RCL Foods Ltd, are cutting 5 000 jobs saying the industry is under threat, media reports say.
In one of the reports Mike Schussler, a chief economist at Johannesburg-based Research Company contends that South Africa seems to be paying the price of having one of the most open agricultural markets in the world at a time when countries are adopting more protectionist policies.
The country’s Trade and Industry Minister Rob Davies is on record calling on his country to defend its chicken farmers from imported meat or face collapse. While domestic producers have been challenged to become more competitive to ensure the industry’s sustainability, Davies says their efforts are less effective unless cheap imports are stemmed, Bloomberg reported.
“We definitely have distress, there’s no doubt about it,” Davies said in January as he admitted the trade fight between his country and one of its largest trade partner, the EU.
What this implies on Zimbabwe?
Zimbabwe is not immune to the vagaries of dumping, which have become a global debate under the World Trade Organisation (WTO). The subject raises serious policy questions, particularly for developing economies like Zimbabwe where the country is battling with rising unemployment levels and food security questions. These factors have strong implications on economic development and social stability.
Concerns have been raised about the impact of chicken cuts from countries such as Brazil and South African finding their way into the local market. Due to porous borders, the ZPFA has claimed that Zimbabwe consumed about 1,5 million kg of chicken valued at about $700 000 from South Africa between January and September last year.
It said the figure were not captured in local trade statistics, but were recorded by the South African Revenue Service, confirming concerns that such products could be entering the country illegally. ZPFA chairman, Retired Colonel George Nare, said their association has been following the trends in the neighbouring country with keen interest. He warned that similar forces were threatening the viability of the domestic poultry sector in Zimbabwe and that measures need to be taken.
“If you look at what is happening in South Africa, Zimbabwe should learn a big lesson that if we allow cheap imports to flood the market this will push out local producers. There is a need to protect the local industry, which is slowly going down,” he said.
“Our Government comes with good policies but there is a problem in implementation. Our border control measures should be tightened.”
Despite the ban on chicken imports, ZPFA believes huge volumes of the product still find their way into the country through porous borders, a trend also fuelled by corruption, Rtd Col Nare said.
“We also need to deal with ‘bigwigs’ who are involved in the smuggling business. Our Government should also come up with measures to support stockfeed producers as this heavily affects production costs. We need to revive the stockfeed sector and Government should be advised properly on these things,” he said.
It is in view of the threat of cheap imports that Government has put in place policy measures such as Statutory Instrument 64 of 2016 to ensure domestic industry viability. Further to that the Government has contracted Bureau Veritas, a French international firm, to implement the Consignment Based Conformity Assessment (CBCA) process, which is also meant to curb dumping and importation of substandard products that could injure public health.
The stockfeed price question
While local poultry farmers have the capacity to meet demand, they continue to face a myriad of challenges that cripple output. Chief among these is the price of stock feed. Zimbabwe needs to beef up its agricultural output, particularly maize, so as to produce its own stockfeed. Recently, the price of chicken in Zimbabwe rose by more than 40 percent from about $3/kg to $4.40/kg in what (ZPFA) attributed to stockfeed price increase as well as the 15 Value Added Tax (VAT) on basic consumer goods including meat, which has since been scrapped following public outcry. The move had pushed the cost of living up and dampened consumer spending. According to Rtd Col Nare the price of stockfeed had increased from $29 per 50kg bag to $34.
The suppliers said stockfeed price increase was triggered by the continued importation of maize used to produce stockfeed. Producers are optimistic that the trend could change for the better in view of anticipated good yields from the 2016/17 agricultural season. Financial institutions also need to support local farmers to enhance capacity and produce competitively.
Back to the South African scenario
Early last year the United States of America, using its Africa Growth and Opportunity Act (AGOA), also cornered South Africa into accept its chicken imports in exchange for continued trade benefits from the world’s biggest economy.
Recent reports indicate that frozen leg quarters imported to South Africa from Europe cost about 17.52 rand a kg ($2.80 per pound) before duties and storage, about 30 percent cheaper than local producers, according to Astral Foods Ltd. The EU has denied dumping accusations insisting that its chicken exports were in compliance with trade laws.
After SA imposed a temporary 13.9 percent duty on European imports in December, the European Trade Commissioner, Cecilia Malmstrom, was reported to have engaged Davies saying that SA’s “structural problems” were more to blame for the industry’s problems than competition from Europe.
The argument has left South Africa with a tough choice: either upset relations with its biggest trading partner or watch the demise of its chicken industry.
The row marks a rocky start to the European Partnership Agreement, a free trade deal signed last year by the EU and southern African countries including South Africa, Bloomberg reported.
“If things stay the same there will be no chicken industry in a year’s time,” Scott Pitman, managing director of RCL’s consumer division, was quoted as saying. Shares of RCL, which produces several food brands other than chicken, are 35 percent below a 20-year high of 19.45 rand in 2014. South Africa is the world’s fifth-biggest consumer of chicken per capita behind the US, Australia, Brazil and Peru, according to the International Poultry Council. The above reports show a worrying trend for a sub-regional economic power house like South Africa, whose operations largely influences economies in Southern Africa.