The South African government is getting lots of reminders that anti-dumping duties on chicken imports from Brazil and four European Union countries are due to be imposed in a few months’ time.
They were actually due to come into effect a year ago, but Ebrahim Patel, Minister of Trade, Industry and Competition, decided last August to delay their imposition by 12 months. Although he agreed with the official investigation, which found that dumping was happening, and harming the local poultry industry, he feared that new import tariffs could add to food price inflation.
Patel has stood firm for the past year, neither commenting on the issue nor giving any hint of whether he plans to impose the tariffs in August or announce a further delay. He has not responded to pleas from the poultry industry to cut short the 12-month suspension because dumping is adding to the woes of an industry already in distress due to power cuts and high input prices.
Whether he is listening to pleas from chicken importers that he should do nothing to hamper the lucrative chicken import business remains to be seen.
FairPlay has weighed in, arguing that the poultry industry is a microcosm of the country’s wider national challenges.
Action against dumped imports is not only crucial for the local poultry industry, but for the way South Africa and its future are viewed, FairPlay founder Francois Baird wrote in Business Day.
“Opening the door to dumping, as Patel did last year, increasingly becomes a question about how soon SA wants to be classified as a fragile or failed state rather than a debate about food prices or an industry’s interests,” he said.
“On almost every key metric our global risk ranking has degraded significantly over the past 10 years. Even ANC secretary-general Fikile Mbalula has conceded that SA is at risk of becoming a failed state.”
The poultry industry has scaled back production because of a “terrible perfect storm” that had in effect wiped out the capacity gains in which the industry had invested in terms of the poultry master plan backed by Patel.
“If the import tariff suspension is not ended in August there will simply be a continued decline in domestic production that threatens long-term domestic food security – a non-negotiable in anyone’s book,” Baird said.
The South African government had to curb the country’s slide towards fragility by tackling the endemic power, corruption and other systemic issues – difficult problems to solve.
“An easier one is ensuring a fair and just trade regime which does not sell precious jobs down the river. While ensuring affordable chicken for the SA population is vital, so is safeguarding the local poultry industry and the jobs it provides.
“This is the kind of challenge we need to confront decisively to avert a slide into increased fragility. Patel holds that power in his hand,” Baird wrote.
Dumping and predatory trade
Illicit trade ‘robs SA of R100 billion a year’
Something else that needs urgent attention is the huge amount of potential state revenue being lost through illicit trade, according to one of South Africa’s top business organisations.
Tax authorities put the loss at nearly R100 billion a year, and it is one of the biggest threats to stability and economic growth, says Business Unity South Africa (BUSA). The organisation has just published a report Organised Crime, Corruption and Illicit Trade: Spotlight on South Africa, compiled by the Transnational Alliance to Combat Illicit Trade (TRACIT).
“The magnitude of the losses is staggering, draining revenue and resources from an economy that could usefully benefit from increasing investment in infrastructure and improving living conditions for citizens,” the report says.
“For example, the South African Revenue Service (SARS) estimates that illicit trade costs the South African economy R100 billion (USD5.9 billion) every year. In terms of lost tax revenues, Business Leadership South Africa (BLSA) estimates that the country loses around R250 million (USD15 million) a day.”
The report says illicit trade is happening in multiple areas, including alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food, and apparel.
The proliferation of illicit trade poses a “top 5” risk to the South African economy, according to the World Economic Forum (WEF).
Although South Africa’s regulatory bodies, institutions and enforcement agencies are well rounded and in line with international standards, persistent capacity constraints and skills shortages impede effective enforcement.
“Even though SARS (the SA Revenue Service) is rebuilding capacity to address illicit trade, vacancies and lack of expertise remain acute.”
The report does not specifically mention poultry, where illicit trade is a long-standing concern. Under the poultry master plan, a task team including SARS has been formed to combat illicit chicken imports and to detect and prevent any instances where high-tariff consignments may be wrongly labelled as lower-tariff products, resulting in lost revenue to the fiscus.
The report says South Africa should consider appointing an independent and specialised “Anti-Illicit Trade Coordinator” with high-level authority, strengthen co-ordination with neighbouring states, and improve public awareness of the threats posed by illicit trade.
Pilchards more popular because chicken isn’t VAT-free
As chicken becomes more expensive in South Africa, low-income consumers are switching to pilchards for affordable food.
This is the conclusion drawn in a Daily Maverick article on the latest results reported by Oceana, the country’s largest fishing company. Oceana says its Lucky Star canned pilchards are selling in record numbers.
“It’s a sign of tough times for consumers back home as they turn to tinned pilchards as a more affordable form of protein,” the Daily Maverick reported.
“Fresh chicken, once deemed ‘affordable’, has now become a ‘luxury’ item out of reach of many.”
Oceana’s profits more than doubled and the fishing company’s shareholders were rewarded with a huge increase in the interim dividend.
Poultry producers, on the other hand, are battling, as shown by the latest results from South Africa’s largest poultry producer, Astral Foods, where profits were slashed and no dividend was declared. There are big boulders on the road to prosperity for chicken farmers, including high input costs, poor infrastructure, avian influenza and the increasing severity of power cuts.
Astral CEO Chris Schutte warned that government failings added to chicken producers’ costs and pushed up the cost of food for vulnerable communities. Oceana’s results show how those communities are reacting.
There is one notable difference in the pricing of chicken and pilchards. Pilchards are exempt from South Africa’s 15% value added tax (VAT), while consumers must pay that extra 15% for every piece of chicken that they buy. FairPlay has repeatedly stated that chicken prices could be reduced immediately if the government removed VAT from the chicken products which have been a staple for low-income households.
Oceana states that less than 10% of their pilchards come from South Africa. Chicken production is a massive local industry, employing more than 50 000 people directly and supporting probably as many indirectly. Chicken feeds the nation, accounting for 66% of South Africa’s meat consumption. Rapidly rising food prices have made the need for “VAT-free chicken” all the more urgent.