Chicken dumping is a national crisis

By Agmat Brinkhuis,Chairman, SAPA; Scott Pitman, MD Consumer Division, RCL FOODS; Katishi Masemola, General Secretary, FAWU

The South African chicken industry, a significant portion of the country’s maize industry, and tens of thousands of jobs are under threat because huge quantities of surplus chicken are being dumped in this market by other countries at prices way below their cost of production.

Thousands of jobs have already been lost – chicken dumping is spreading misery in a country with one of the highest unemployment rates in the world, and where each wage earner supports up to 10 people. It is ruining jobs and lives, and threatens to ruin industries.

One of the country’s largest chicken producers, RCL FOODS, has warned that because of dumping the whole South African chicken industry could collapse before the end of 2017. Huge numbers of direct and indirect jobs are at risk, mainly poor people with many dependents – 110 000 in the chicken industry, and a further 20 000 in the maize and soya industries. Chicken producers buy nearly half of the country’s maize crop.

The cause of the problem is that some foreign producers are selling cuts of brown meat that are unpopular in North America and Europe below cost in South Africa. The preference in North America and Europe is for chicken breasts and wings, and these premium cuts can be sold there at a price high enough to cover the production cost of the entire chicken. This leaves the brown meat – leg quarters of drumsticks and thighs – which becomes surplus offcuts which are classified as waste and then sold in any market that will take them for any price the exporters can get. They are sold below the cost of production, which is the trade definition of dumping and against the rules of the World Trade Organisation. As local producers cannot compete with dumped products at artificially low prices, they are left with no options other than to shut operations, cut jobs and eventually go out of business.

Imports of chicken have gone up by nearly 10 times in the last 7 years, from 3 500 tons a month in 2009 to 30 000 tons a month in the first half of 2016. Imports have accelerated rapidly in recent years as South Africa remained open to chicken imports as other markets closed.

South Africa is being targeted by exporters, particularly those in Europe and South America, because it is one of the few countries that allows virtually unrestricted chicken imports. Russia, formerly a major market, closed its borders to EU imports in 2014 while China has raised tariffs or health barriers to keep imports out.

As African countries were targeted they, too, implemented a variety of measures to protect their local industries. In Ghana, one country that did not do so, the local chicken industry has collapsed. That is the danger facing South Africa as ever larger volumes of chicken imports are dumped here.

Dumping is a threat to this country. It raises important issues for South Africa and its policy makers, from unemployment to food security, and has implications for economic and social stability.

It is not about globalisation, free markets and free trade, nor is it an issue of an inefficient South African industry being undercut by world class producers in other countries.

South Africa’s modern chicken industry is the fifth most efficient in the world, with production costs well below those in Europe. However, there is virtually no country that South Africa can export to, because all impose a variety of technical barriers to block entry for our chicken products. One positive development is that the United Arab Emirates has recently lifted phytosanitary barriers on South African chicken.

Calls are being made for the local industry to become more efficient in order to compete against imports. That misses the point - we are efficient, but we cannot compete against dumped chicken portions sold way below the cost of production.

South African producers would compete strongly against imported products if competition was fair, but dumping is not fair competition. Exporters are price takers – they will sell their huge surplus of brown meat leg quarters for what they can get. If tariffs are raised, they will accept even lower prices to accommodate the increase.

And so the local industry contracts, and jobs are lost. This in a country where official unemployment jumped to 27% in November 2016, with the broader definition, including the hopeless who have stopped looking for work, standing at 36%. And, in some of the areas where chicken producers operate, unemployment is even higher.

When more than a third of working-age people have no work and no income, that is a crisis for the economy and a threat to political and social stability. In those circumstances the government should be doing everything it can to avoid adding thousands more to the jobless pool.

Food security, too, becomes an issue when major food producing industries are under threat. Chicken is the major source of protein for the majority of South Africans and has been supplied by local producers. If the local industry collapses, and the country relies on imports, that security is gone. Foreign producers are free to raise prices or switch markets at will, when a better business opportunity arises.

Dumping is not a friend, even for the poor. Local consumers may briefly enjoy cheaper chicken, but eventually they will have to pay higher prices or go hungry. Tens of thousands of South Africans will be jobless, many of them permanently unemployed without hope of finding work.

Dumping is a destroyer, which is why the South African chicken industry and its thousands of workers need protection – not because the industry cannot compete, but because it is being destroyed by dumping, a practice outlawed by the World Trade Organisation which sets the rules for global trade.

However, those rules take time to implement, and remedies are likely to focus on modest tariff increases, which will not work. South Africa needs to act quickly, and implement the technical barriers used by other countries – phytosanitary measures, health checks, demands for abattoir certification – that can help protect the South African chicken industry.

Chicken dumping is becoming a national crisis. If nothing is done, the country could have another 130 000 jobless people by Christmas, leaving about 1.3 million family members and other dependents without food or income. That prospect is a call to action for the policymakers who can prevent it.