South
Africans should brace for a chickenless festive season this year as multiple
industry issues come to a head, resulting in a perfect storm of supply
shortages and rapid price hikes.
Latest
figures from the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD)
reveal that the price of a 10kg bag of frozen chicken gained as much as R11.33
in August, rising from R383.37 in July to R394.70 – a near 3% increase in
only 30 days.
But as local market pressures hit supply chains, South Africans
should expect this trend to only increase in ferocity.
These
runaway prices have three potential causes, namely: non-tariff trade barriers
that have blocked imports from major international suppliers; the
anti-competitive anti-dumping duties levied against South Africa’s most
important poultry trading partners; and underwhelming local supply exacerbated
by an ongoing bird flu epidemic and other pressures.
First,
unlike our neighbours in Namibia, South Africa has been dragging its feet in
reopening poultry trade with certain countries such as Poland, Belgium, and
Argentina, even though they have been declared bird flu-free.
While Ireland has
the green light, Ireland is a far smaller producer than either Poland, Belgium,
or Argentina, raising the concern that trade permissions may currently be
guided by political rather than phytosanitary motivations.
The
failure to reopen trade with these countries, even after they have been
declared free of bird flu, serves as a significant non-tariff barrier to trade,
further protecting local producers to the detriment of consumers, importers,
and local resellers.
Next,
South Africa has implemented anti-dumping duties of a maximum of 265% for
bone-in chicken imported from Brazil – South Africa’s largest source of
imported chicken – in addition to the existing 62% import tariff.
South Africa
has further raised significant anti-dumping duties on chicken against Ireland,
Poland, Spain, and Denmark. Prior to the introduction of these duties, bone-in
chicken from Poland, Spain, and Denmark were duty-free.
These
punitive tariffs have already disincentivised imports, which have historically
served to enhance competition and keep prices low for consumers, while
augmenting local supply in times of shortage.
Originally
intended to protect local producers and encourage job creation, these absurd
anti-dumping duties and other anti-competitive regulations have alienated our
most important trading partners and have led to zero job creation. In fact, we
might see scores of workers being furloughed or retrenched or, in the best-case
scenario, working less hours and receiving lower incomes.
Notably,
few international poultry producers want to trade with South Africa while other
markets offer them better prices and more beneficial trade terms. This means
that we effectively have no Plan B in the event of, for example, a widespread
bird flu epidemic decimating local supply.
But
topping off the powder keg, a new strain of bird flu called H7N6 has spread
through Mpumalanga, Gauteng, and the Free State over the past couple of months.
Alongside the more common H5N1 strain, this has led to the death of more than
one million chickens this year by the most conservative estimations, resulting
in billions in lost revenue.
Coupled
with unfavourable import tariffs, this will inevitably lead to meteoric price
increases, lower supply availability, and an alarming drop in consumption of
this protein which is so integral to the majority of South Africans.
Worse
still, the recent bird flu outbreak is hardly a black swan event. Bird flu is
endemic in every poultry flock in the world, but under normal circumstances,
imports would cushion the blow and keep prices in check. That is no longer the
case.
Next,
the cost pressures facing local producers such as loadshedding and
deteriorating water infrastructure are likely to be with us for some time to
come. By forcing exclusive dependence on local producers, South Africa is
inevitably passing these expenses onto already vulnerable consumers.
In
the past two weeks alone, clients in the industry have reported that chicken
prices from local suppliers have already jumped as much as 15% in the past two
weeks in response to growing supply pressures. And given lengthy lead times for
food supply chains, we are likely to only see the full impact of decreased
imports and the pressures on local producers within the next two to three
months.
As
such, we advocate for another temporary suspension of these harmful
anti-dumping duties for a period of at least six months. During this time, the
government should further reassess the appropriateness of the anti-dumping
duties and include prominent importers in the conversation.
Secondly,
government must urgently reopen trade with Poland and Belgium, and update its
poultry quarantine regulations to better align with those of other countries.
Once countries have been declared free of bird flu by the relevant regulatory
bodies, trade should be resumed promptly with these countries.
Delayed
action to resolve the three major issues plaguing local poultry supply will
result in a significant shortfall accompanied by a striking price increase on
the inevitably limited stock. As things stand, South Africa is placing all of
its eggs in one basket, based on the assumption that local producers will be
able to quickly recover from the bird flu epidemic, meet local demand with
little to no support from importers to plug the gap, and keep domestic prices
from rising beyond what the average South African can afford.
Ultimately,
poultry imports play a critical role in maintaining market price
competitiveness and supplementing local production shortages. Despite its
reassurances, the local poultry sector simply does not have enough supply to
meet growing demand, and this lack of international competition could result in
a price catastrophe.
