Attending the World Economic Forum in Davos, World Trade Organization Director-General Roberto Azevêdo stated “clearly trade is very high on the political agenda at the moment. I recognize the concerns about globalization – and the need to respond. The net positive effect of trade means nothing if you’ve lost your job. So we need better domestic policies to support people and get them back to work. But attacking trade won’t help here. I have heard a lot of talk about protectionism and trade wars this week. That would destroy jobs, not create them. I am urging everyone to show caution and leadership. We must avoid talking ourselves into a crisis.” These words resonate with the current situation in the chicken industry within South Africa.
We have seen numerous applications to the South African International Trade Administration Commission (ITAC) by the domestic chicken industry for tariff protection, anti-dumping duties and safeguards to protect the industry against imports from all over the world, including Brazil and the European Union (EU). Furthermore, the South African Poultry Association (SAPA) is critical of the relaxation of import requirements for chicken imports from the United States (US) (which has seen an application to the domestic courts to review the legitimacy of the relaxation by SAPA. The increased demand for protection by domestic producers, SAPA and labour unions has resulted in bitter rivalry within the wider domestic industry and have put the South African Department of Trade and Industry at odds with chicken producers, labour unions, consumers, import and export organisations and trading partners (most notably the US and EU). What seems to be evident from the current back-and-forth accusations among all the role players is that there is a lot of uncertainty and disagreement about the true difficulties facing the chicken industry and what the solution to the longer-term future of the South African chicken industry is.
The current disagreement among the role players is centred around the following issues:
• There has been an influx of bone-in chicken portions into the South African market. There seems to be disagreement about the level of imports as a percentage of domestic consumption and the value of imports.
Chicken is a staple food in South Africa. Some argue that it is currently not available at affordable prices for poor households, and that there is a need for imports to supplement a shortage in demand. Some domestic producers have argued that the domestic industry is able to meet domestic demand, by expanding and creating jobs, rendering imports superfluous; if it were not for the dumping that is taking place. The argument continues, stating that if dumping destroys the domestic industry, consumers will be faced with even higher prices and food security will become a problem, as a result of the lack of domestic competition.
High input costs, especially maize and soya (due to drought and poor rate of exchange) have significantly contributed to higher production costs. However, recent rains may lead to a decrease in the cost of these inputs in the near future and should provide some relief.
Structural problems and the lack of competitiveness of the local industry have been cited as the actual contributing factors to the struggle of the domestic industry. Problems which have been cited include high levels of concentration with dominant firms, protected by, barriers to entry across the value chain (resulting from, among other things, vertical integration of the dominant firms), bad management decisions and the lack of modern technologies. However, producers argue that they are highly competitive when it comes to producing whole birds or carcasses and that they are efficient, but cannot compete in an unfair environment.
What about exports? While export organizations have called for looking at export potential to support, develop and grow the domestic industry; domestic producers have cited technical barriers to trade, like certification procedures and health requirements as the reason for the lack of exports.
The level of protection which has been granted through anti-dumping duties and safeguards has not been sufficient to ensure the viability of the industry.
Putting all these views into perspective shows a decisive lack of agreement about what the underlying problems are. This seems to have created a tremendous amount of animosity and uncertainty within the industry. Furthermore, the arguments put forward suggest that the problems in the chicken industry run deeper than just import penetration. This is exemplified by the fact that the latest provisional safeguard duty is far less than the level of protection requested by the domestic industry. In the application for safeguard duties on chicken imports from the EU the domestic industry requested for a 37 percent duty, while only a duty of 13.9 percent has provisionally been granted. What needs to be emphasised is that trade remedies can only be utilised to the extent necessary to remedy the harm caused by dumping, subsidies or a surge in imports; based on evidence before ITAC. Other factors which have caused damage cannot be attributed to the action for which a remedy is sought.
So what can be done about the chicken industry? In the words of Azevêdo, which domestic policies can be improved to assist the failing industry? The South African Department of Trade and Industry has already announced that a team has been tasked to put together a long-term strategy to assist the industry, within the rules of the World Trade Organization. There are a variety of policy options which can be utilized, including domestic support measures, trade remedies, structural reform, support for new entrants, government procurement, marketing and export promotion and addressing non-tariff barriers; all which can be consistent with the rules of the World Trade Organization and other existing trade agreements. However, a vital component of this long-term strategy will have to be an objective evaluation of contributing factors to establish the root-causes of the problem. Without such an evaluation and measures devised to address each element of the problem an overarching strategy will not be possible.
*Willemien Viljoen, tralac Researcher, comments on the state of the South African poultry industry and the trade remedies being sought to protect the local market.