Trade and Industry Minister Rob Davies addressing a media briefing on Monday on increases in poultry import tariffs.  Picture: GCIS
Trade and Industry Minister Rob Davies addressing a media briefing on Monday on increases in poultry import tariffs. Picture: GCIS

AS FAR back as 2006, the National Agricultural Marketing Council warned that the buoyant market for chicken products had obscured the potential effect that imports — mainly from Brazil — might have on local producers.

Its warnings look quite prophetic now in the light of the decision by Trade and Industry Minister Rob Davies to hike tariffs on a range of imported chicken products. For months, poultry producers have been campaigning for greater protection, saying the industry, and 100,000 direct and indirect jobs, were under threat.

That the industry is in distress is undisputed and is evident from the listed poultry producers’ results.

RCL, formerly known as Rainbow Chicken, South Africa’s largest processor and marketer of chicken, reported a R3.7m loss in the year ended June 30. Country Bird, which produces the Supreme brand, reported an operating loss of R24.7m in its poultry division. It is a picture repeated across the industry.

But it is not just cheap imports that have hammered the local market. Slower economic growth, consumers who are under financial pressure and a surge in input costs have all taken their toll on operating margins.

The question is whether the tariff increases will be enough to help the industry back to its feet. The increases certainly aren’t what the industry wanted. For instance, the South African Poultry Association called for a 56% tariff on individually quick frozen (IQF) chicken. Mr Davies granted a tariff of 37%.

IQF chicken, which accounts for 70% of domestic production and 54% of imports, will now attract an additional R2/kg duty, in addition to the R2.20/kg duty in place at present. But will this really help poultry producers? Nearly a third of all IQF chicken imports emanate from the Netherlands and will not be subject to tariffs because they form part of the European Union (EU)-South Africa free-trade agreement.

It is interesting that the Netherlands is the second-largest supplier of poultry meat to South Africa behind Brazil, with 14% market share, up from virtually zero in 2010.

So while our local poultry producers will find some relief from IQF chicken imports from Brazil, they will still need to battle against imports from the EU. That is until Mr Davies and his team are able to put in place measures against EU imports. But should we really be protecting the poultry industry if it is not able to compete against its international counterparts?

The answer to this is not as simple as it seems. South Africa’s poultry producers are actually internationally competitive when using measurements such as the production efficiency factor. The problem is that expensive feed, in this case maize, which is import-parity priced, processed efficiently via a chicken still gives rise to an expensive product.

What is really going on in the poultry industry is a microcosm of the global distortion in international agricultural trade because of government interventions. There is no sector that is not in some way protected or given support, whether through subsidies or incentives. Poultry producers in the Netherlands, for instance, benefit from government assistance on input costs.

On that basis, the local poultry industry will always struggle to compete. Funnily enough, import price pressure and free market competition over the past decade have forced the industry to become more efficient and have thus created greater demand for chicken products due to lower prices.

What the industry needs to do now is find ways to improve efficiencies once again and to lower input costs, as it did before, so it can survive in this distorted market.

Tariff protection should be used only for temporary relief while the industry gets its house in order because, in the long run, South African consumers should not be required to prop up local producers through higher chicken prices.