VAT-free chicken a solution to rising food costs

Affordable and nutritious chicken is essential for low-income households, but what challenges does the poultry industry face in keeping prices down? Francois Baird, founder of the FairPlay movement, explains.

The South African poultry industry’s objective is to produce high-quality chicken at the lowest possible cost of production for all South Africans. It has done so for decades and the popularity of chicken shows that this business model is a success.

Chicken feeds the nation – it makes up 66% of the meat consumed in the country, and affordability is a key factor. It accounts for most of the meat protein in the diets of low-income households.

What are the risks of this policy? The risks for producers were vividly illustrated when the poultry industry was hit by load shedding, which reduced production and cost billions in diesel for generators, by high feed costs following the Ukraine war, and by the worst outbreak of bird flu in South Africa’s history. On top of these troubles, poultry producers had to deal with the collapse of transport and municipal infrastructure.

Despite all of these additional costs, they had to keep producer prices down. Most producers succeeded in limiting price increases but at a huge cost to themselves. The country’s largest chicken producer, Astral, recorded the first annual loss in its history and noted that for a time it had been “subsidising” the price of chicken to consumers – selling chicken at a loss.

Sadly, many smaller-scale chicken farmers went out of business because the cost increases were more than they could bear, while the government is refusing to pay compensation for the millions of chickens it ordered to be culled during bird flu outbreaks. When profit margins are tiny, business closure is a constant risk.

Shift in consumer buying habits

For consumers, the experience has been different. The surge in food price inflation in 2022 and 2023 after Russia’s invasion of Ukraine has put prices on a higher level. The rate is declining, but consumers remain under pressure.

Money is tight and choices have to be made. The Competition Commission has noted a switch from chicken to canned pilchards, which are free of VAT while chicken is not. The Pietermaritzburg Economic Justice and Dignity team has noted a switch to cheaper chicken products such as offal, and alternative products because, for many, even chicken is unaffordable.

Are chicken imports the answer? Apart from offal, most chicken imports are declining and that drop has continued in 2024. Import volumes in the key category of bone-in portions are at their lowest level for years. These are the leg quarters, drumsticks, thighs and wings that compete with local products, including the popular supermarket packs of individually quick frozen (IQF) chicken portions.

Concerns over import inspections

FairPlay has also voiced concern that there are not enough state veterinarians and food inspectors to do more than random checks on chicken import consignments. This is a food safety issue – bird flu is everywhere in the world except Brazil, and some countries have in the past banned Brazilian chicken because of other issues, such as salmonella.

Inspections are vital if consumers are to be assured that imported chicken meets the same high standards required of local products, particularly in price-sensitive categories.

In any case, the South African poultry industry supplies around 80% of the chicken on the domestic market, so that is where the focus should be. Their focus has been to sustain their businesses while producing the best possible chicken as cheaply as possible.

Consequences of pricing chicken out of reach

I was amazed to see a recent article in which Dr Gustav Brink, who lectures at the University of Pretoria, argued for the most expensive chicken possible. He said the local poultry industry’s “cheap chicken” business model was good for consumers but bad for their businesses.

What chicken producers should do, Dr Brink said, is to “maximise” their returns by selling each chicken product for as much as possible. He believed that would expand the industry and create 10 000 new jobs.

FairPlay believes it’s more likely to lose 10 000 jobs, or even more. Chicken purchases, as noted earlier, are price-sensitive. If chicken producers price themselves out of the market, they will destroy their businesses and their jobs.

Chicken would become an elite product, and the mass market would switch to other foods. Chicken imports would increase, giving importers pricing power. Experience has shown that, once that happens, prices go up. Less chicken would be sold at higher prices.

This is not what South Africa needs. As the primary source of meat protein, chicken is vital for the country’s health. This is particularly so for low-income households and the shamefully high number of malnourished children in a relatively wealthy country. Just under 30% of all children under five are stunted, the result of chronic malnutrition and lack of access to protein, as this affects them for the rest of their lives.

Broader arguments for VAT-free chicken

According to the United States department of agriculture, chicken contains multiple vitamins, including B3, B6, and B12, as well as essential minerals and micronutrients. These contribute to the health of children, students and workers – the learning and earning on which economic growth depends.

Chicken should therefore be produced as cost-effectively as possible to ensure it remains as popular as possible. That is the aim of the SA poultry industry, which can bring the price down further if the government removes the 15% value-added tax (VAT) from the chicken products most consumed by low-income households.

VAT-free chicken is a pro-poor proposal. It is also a pro-nutrition, pro-health and pro-jobs proposal.

All of the arguments for VAT-free chicken – and there are many of them – illustrate the benefits of cheaper chicken.

Francois Baird is the founder of the FairPlay movement. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.