South Africa’s poultry producers have spent seven years rebuilding an industry devastated by a flood of cheap chicken imports, including a recovery from massive losses caused by the worst bird flu outbreak in the country’s history in 2023.
Now their sustainability is once again at risk.
The threat is the removal of general tariffs on chicken imports, firstly from the United States and possibly from other major producers such as Brazil and Argentina.
These tariffs apply to about a third of South Africa’s chicken imports and their removal would lead to a new surge of dumped and low-priced chicken from other countries.
General tariffs, known as Most Favoured Nation or MFN tariffs, are used by all countries to restrict imports that that threaten local industries.
They are separate from, and in addition to, anti-dumping duties, which are applied specifically to imports that come in below cost, or below the price at which they are sold in the producing country. South African poultry producers often have to compete with foreign producers who enjoy direct and indirect subsidies and benefits not available here.
MFN tariffs apply to all countries except the European Union, the United Kingdom and South Africa’s neighbouring countries. Importantly, they apply to Brazil, the world’s largest chicken exporter and the source of more than 80% of South Africa’s chicken imports.
A combination of general tariffs and anti-dumping duties has had a significant role in the recovery of the South African poultry industry.
The 2019 poultry master plan was designed to revive and stabilise the poultry industry, which was in crisis because of massive volumes of dumped chicken pouring into the country. The result was contraction, financial losses and the loss of thousands of jobs.
The master plan’s aims were to curb imports, stimulate investment and expand production for the local and export markets. This would increase the local poultry industry’s market share through competitive industry growth. New and renewed anti-dumping duties helped, as did an increase in MFN tariffs that was imposed in 2020.
The result is that the poultry industry is growing, profitable and internationally competitive. However, a new flood of dumped and unfairly cheap chicken imports could undermine that progress.
The two big threats are the United States and Brazil. The products freed from MFN tariffs would include bone-in portions such as leg quarters, which are frequently dumped by large producing countries and which caused the 2016-2018 poultry industry crisis.
The US has a huge annual quota (currently 73 000 tonnes) of bone-in chicken imports into South Africa free of the anti-dumping duties that should apply. This is a licence to dump, and it was forced on South Africa by the US in 2015.
The quota has hardly been used recently, partly due to widespread outbreaks of bird flu in the US. That could change, however, as could the fact that while US chicken imports are free of anti-dumping duties, they are still subject to the MFN tariffs.
The US wants those MFN tariffs removed, and is pushing for that in trade negotiations with South Africa. If they succeed, that would open the way for a new surge, not only of the bone-in portions in its annual quota, but to other US chicken products, from whole birds to boneless portions and offal.
And if the US manages to free its chicken producers from South Africa’s MFN tariffs, Brazil will surely demand equal treatment. As Brazil supplies an overwhelming majority of South Africa’s poultry imports, removing MFN tariffs could spell disaster for Southy African chicken producers.
That, however, is what is being advocated by chicken importers. Their representative body, the Association of Meat Importers and Exporters (AMIE) is agitating for the removal of MFN tariffs on chicken imports. They contend that, as the poultry industry is profitable and competitive, the tariffs are no longer needed.
The situation is more complicated than importers make out. Profitability in the poultry industry is hugely influenced by the price of grain, which makes up around 70% of the cost of producing a chicken.
At the moment, grain prices are low after two years of good rains and record harvests. The El Nino weather phenomenon, which brings hotter and drier conditions to Southern Africa, is forecast to hit the region this summer. There are already projections that this year’s El Nino could be the worst in living memory.
A combination of reduced maize plantings, extreme heat and possibly drought would reduce grain harvests. Despite stockpiles from previous harvests, grain prices would inevitably rise. Poultry profit margins could come under severe pressure. Small-scale farmers in particular could again face contraction and job losses.
Simply put, the good years must offset the bad years in providing affordable cheap chicken sustainably to the consumer and ensuring national food security.
Profitability is a key consideration when tariffs are considered by South Africa’s trade regulator, the International Trade Administration Commission (ITAC). Without profitability, there can be no investment, no expansion and no job creation.
When it increased MFN tariffs in 2020, ITAC noted that the poultry industry was globally efficient “but has experienced profitability challenges due to constantly being undercut by low priced and opportunistic dutiable imports”.
The poultry industry is a huge and vitally strategic part of South Africa’s economy. It is the largest component of the country’s agricultural sector and is critically important for grain producers. Poultry consumes nearly half of South Africa’s maize and most of its soya crop. Together, they employ more than 100 000 people, mainly in poor rural areas.
Removing MFN tariffs would put that at risk.
Francois Baird is founder of the FairPlay movement.
**The views expressed do not necessarily reflect the views of the National Media Group.