A Closer Look

Claims Around Tariff Suspension

Huge victory for consumers!

On August 1st, 2022, the Department of Trade and Industry, via the minister Ebrahim Patel, announced that the introduction of further anti-dumping tariffs on poultry imports from Brazil, Spain, Ireland, Denmark and Poland would be suspended for one year. This was after an investigation by the International Trade Advisory Commission (ITAC) which claimed to have found ‘clear evidence of dumping’ by the five countries which had caused ‘material harm’ to the local industry.

Despite this finding, said the Minister, his department would not introduce further punitive tariffs as they would be inflationary for a consumer already hit hard by steep fuel and food price increases.

Predictably, the South African Poultry Association (SAPA) immediately issued statements calling the decision a ‘licence to dump’. They foresaw the collapse of the domestic poultry industry and threatened to withhold any future investment in local production. They claimed to feel ‘betrayed’ and that this decision was in direct contravention of undertakings in the Poultry Master Plan.

Their PR agency Fair Play also warned that the suspended tariffs would have catastrophic consequences.

By contrast, AMIE welcomed the ruling as a major relief for beleaguered consumers. There was a lot of discussion around this issue in the media, but what became clear from aome of the statements made, was that there are a number of misapprehensions about what actually happened. With our facts below, we are hoping to simplify the debate.

  • *Minister Patel did not suspend import tariffs on chicken. He suspended additional

  • punitive tariffs against one particular type of chicken (the ‘brown meat’) from five countries.

  • South Africa imports a number of different types of chicken meat: broadly speaking, the

  • three main types are the leg quarters (the ‘brown meat’), wings, and MDM (mechanically

  • deboned meat) which is the staple ingredient of polony and vienna sausages.

  • MDM is not produced in South Africa at all. All MDM has to be imported.

  • The local industry cannot produce enough chicken wings (the mainstay of restaurants

  • and the fast-food industry) to meet demand, at any time. Therefore chicken wings have to

  • be imported to avoid critical shortages.

  • The portion of the chicken, therefore, that was being investigated by ITAC, is only the leg

  • quarter.

  • All imported chicken is subjected to general import tariffs. Leg quarters carry a standard import tariff of 62%. This remains unchanged.

  • 5 countries were investigated for dumping (Brazil, Ireland, Poland, Denmark and Spain).

    South Africa imports chicken from many other countries, most notably the US and Australia.

The South African Poultry Association claims that imports make up 26% of all poultry consumed in this country. This is most likely correct, but that includes all imports from all countries, and it also includes all three different types of chicken.

If one removes the two types of chicken that we are compelled to import (the wings and MDM) and only looks at imports from the five countries, the percentage is closer to 13%. This has been steadily declining from a height of approximately 17% in 2018.

The definition of dumping, according to global trade regulations, is when an exporting country sells its goods in another country at a price below what it sells for in its own country.

This is a vitally important definition, as the concept of dumping is often misunderstood. Dumping is not the same as illegal imports, or offloading unwanted or below-standard goods as a kind of international ‘fire-sale’. The quality of imported goods is often higher than locally-produced goods as import quality-controls are strictly applied.

There is no doubt that local poultry production is not in a healthy position. There are several issues:

  1. The structure of the industry is problematic, as it is entirely dominated by five large companies that tightly control the industry and protect their own interests. This raises barriers to transformation and black ownership.

The local industry faces a number of domestic stumbling blocks, which make local production expensive and uncompetitive.

The main threats to the continued health of the local poultry industry are:

  1. very high prices of chicken feed, machinery and antibiotics (most of which are imported);

  2. interruptions to water supply, electricity and collapsing municipal services due to poor municipal service delivery;

  3. high crime which necessitates expensive security and pricey insurance;

  4. expensive fuel, poor roads and high transport costs; high costs of labour; the unfavourable exchange rate.

The investigation:

The outcome of the investigation has puzzled industry experts. To justify punitive tariffs on top of the standard import tariffs, an investigation needs to find that there was dumping, and that this dumping caused ‘material harm’ to the local industry.

  • *It is easy to decide if there is dumping or not: the investigation only has to compare the price charged by exporting countries versus the price that the product costs in the country of origin.

  • To decide if there was ‘material harm’ to the local industry, there are a number of indices that need to be measured. The report is not clear on the ‘material harm’ that the local industry has suffered.

In order to unpack the outcome of the report in more detail, and the implications of the Minister’s decision, ChickenFacts interviewed Donald Mackay, director at XA Global Trade Advisors, who has given a clear and concise analysis of the report.

LISEN TO THE INTERVIEW HERE

Finally, the implications of the Minister’s decision is huge and will take some time fully to be felt. His suspension of anti-dumping tariffs is an admission that protectionism is inflationary, and that localisation is unfeasible. This has implications that are wider than the poultry industry and is a possible hint that localisation and protectionist policies are being reconsidered.

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