While trade policy has potential to boost local poultry production, it could also harm household consumption through price escalation caused by excessive protection. Thabile Nkunjana, agricultural economist with the National Agricultural Marketing Council argues for a balance between protecting local producers from cheap chicken imports and assuring competitive pricing for consumers.
South Africa’s poultry industry has dominated the news for a while, mainly on sensitive matters pertaining to trade policy. The industry is vital for job creation and food security as it provides chicken, one of the affordable sources of animal proteins to households
Moreover, it is a crucial industry for rural upliftment, in particular for women headed households. As a result, trade policy is considered an instrumental tool to provide necessarily support to domestic production.
While trade policy has potential to boost local poultry production, it could also harm household consumption through price escalation caused by excessive protection. Policymakers are therefore faced with a difficult decision to balance the interests of both farmers and households in order to achieve a positive net effect on the economy. It is imperative that import tariffs do not erode consumer welfare by ensuring that import tariffs do not have notable inflationary effects on consumers.
Following the poultry import tariff rates increment in March 2020, the industry anticipated a decline in chicken imports. There were mixed feelings about this, mainly from importers, arguing that the protection given to the industry favours particular industry players and not the entire industry.
Nonetheless, trade data shows that poultry imports for South Africa did experience a decline in 2020 as compared to the previous year. After reaching high import quantities of 565 427 tonnes in 2018, imports commenced declining, recording a 4.7% fall in 2019 and further 10% drop in 2020. The large decrease in 2020 is attributed to tariff escalations imposed early in the year. Looking at the sources of poultry imports, Brazil, the USA, and Ireland remain the biggest suppliers to South Africa.
Also read: Poultry industry curbed by soybean prices
Impact on chicken affordability
Interestingly, Brazil’s supply slightly increased by 0.4% compared to the corresponding period the previous year despite the new tariff increments. However, EU countries such as Denmark saw a drop of 28.9%. Similarly, Argentina’s supply declined by 22.2% while the USA imports was down by 11.3%. It is important to note that EU countries were also affected by the Avian Influenza in 2020.
It is evident that tariff escalation has partly contributed to import decrease in 2020, which should bode well for local producers. While this is good news for producers, it is important to also understand the impact on households’ affordability, that is, retail prices for poultry products.
According to StatsSA food price data, the poultry prices did grow in 2020 as compared to the previous year. The prices are continuing to rise in 2021 with the certain poultry products such as IQF (individually quick freezing) growing by 14.5% in January 2021.
‘The rising domestic chicken prices has also been fuelled by rising feed costs and the effect of the coronavirus pandemic that constrains food logistics and processing.’
This could be attributed to tariff changes, however, the effect of feed cost should weigh in. Around 70% of broiler production in South Africa is under intense feeding operations, where soybean and yellow maize are the biggest ingredients constituting up to 80% of feed products. The country remains a net importer of soybean and it is a price taker in the global market. This implies that higher global soybean prices are transmitted into domestic feed prices, subsequently passed to poultry producers and eventually the consumers in households.
Analysing both the import data and local poultry prices, it safe to state that the tariff increase imposed by government in March 2020 has had a positive impact on reducing imports. As expected, the rising tariffs have partly contributed to increasing poultry prices, which impacts the household consumption as poultry meat becomes less affordable, in particular for poor households.
The rising domestic chicken prices has also been fuelled by rising feed costs and the effect of the coronavirus pandemic that constrains food logistics and processing capabilities. A key message from the data analysed is that trade policy is crucial to ensure a fair playing ground, but appropriate tools should also be put in place to support consumers. This could include feed support for farmers to mitigate the cost pressures and subsequently keep the retail prices stable.
Also read: Poultry pricing, the invisible hand and profit margins
