We need a solution instead of crying fowl
tion of poultry meat grew rapidly for a very long time.
In 1981, we consumed 890 000 tons of red meat (beef, mutton and lamb and pig meat) at 31kg a person, and only 338 000 tons of poultry meat (at 12kg a person). In 2015, these numbers were 1 470 000 tons of red meat at 27kg per person and 2 138 000 tons of poultry meat at 40kg per person.
At the same time, imports of chicken meat also increased rapidly: the country moved from being a net exporter during the early 1980s to where we now import close to 500 000 tons a year, which is 20% of local consumption.
Second;y, chicken meat is not a homogeneous product. To reflect this, South Africa has a range of tariff lines on whole chicken carcasses, deboned carcasses or portions, frozen or fresh meat. The industry request for a tariff refers specifically to frozen portions that have not been deboned. We know that in many developed countries, the white meat from the carcass is in high demand, so sells at a price premium after it is processed into polonies and luncheon meats.
But, the argument goes, because producers in those countries make their profits out of the white meat, they can export these portions at any price they want. Furthermore, the US and EU subsidise their producers directly and indirectly, so we need to ask if the playing fields are level.
Third, research by the Bureau for Food and Agricultural Policy shows South Africa’s poultry producers are as efficient as their counterparts in most parts of the world at turning grain (mostly yellow maize) and vegetable protein (from soya beans, sunflowers and canola) into poultry meat.
Where we can’t compete with the US and Brazilian producers is in the production of the grains and the vegetable proteins themselves, largely because our agricultural resources are poorer than most, and because we pay too much for fertilizers. While we can normally produce these grains cheaper than EU far mers, our poor climate means that intermittent shortages chase up the prices of feed.
Fourth, why don’t South African producers export chicken breasts, which fetch the highest prices in the countries that are competing with us? The answer lies in the sanitary and phyto-sanitary regulations that govern imports into the EU and US. While the state of South Africa’s veterinary services is a cause for concern, we must always be aware that these regulations can be misused, as appears to be the case with the citrus black spot saga.
Fifth, poultry production utilises some important resources, including capital, labour, management, birds and poultry genetics, poultry feed, veterinary services, etc. It is a highly capital-intensive production process, and this creates another problem for our producers: their counterparts in the USA and Europe can access capital at 1.5% while we pay anything between 9 and 12% per annum.
In addition, most of the equipment and technology is imported at high import duties, so the landed costs in South Africa are high.
Finally, to the extent poultry production is protected from foreign competition, we need to recognise not all countries are faced with paying the same tariffs. Over the past few years there have been attempts to gain additional tariff protection against imports from Brazil and the US, but in the process imports from the EU, whose exporters face a zero tariff into our market, have increased the most.
The temporary relief afforded by the provisional safeguard duty of 13.9% tariff introduced in December lapses after six months.
In conclusion, producers feel they get little support from the government and relatively little protection against competition.
Consumers vote with their cash or credit cards: they will buy the cheapest meat regardless of whether it is local or imported. And traders are likewise agnostic, they will source where they can find the cheapest price.
So what do we do? The key question is to establish whether the current low returns, margin squeeze and financial losses is temporary as a result of the high-feed costs or whether it is structural and of a long term nature, largely driven by high capital costs and unfair trade practices. This is what should drive alternative solutions and state intervention.
We must always be aware that regulations can be misused
Nick Vink is a professor at the University of Stellenbosch in the Department of Agricultural Economics. He specialises in agricultural and agribusiness-development policy, land reform and empowerment, agricultural marketing, tax and international trade issues.
Johann Kirsten is a professor and the director of the Bureau for Economic Research at Stellenbosch University. His main research interests are agricultural policy, land reform and the economics of origin-based foods.