The case for extending chicken tariff rebates - Hume International
By Roy Thomas
There’s an old saying that there are two sides to every story, and the current battle over the question of chicken import duties and tariff rebates serves as a case in point.
While the issue may be complex, there is a potentially simple solution: Extend the rebate for those products that are critical for lower-income families and manufacturing, where they add the greatest value for local businesses and consumers.
As context, the International Trade Administration Commission of South Africa (ITAC) is currently deliberating on whether to extend tariff rebates on imported chicken for the second quarter of 2024.
These rebates were implemented in January to keep chicken affordable for businesses and consumers, and to offset any potential price increases arising from supply shortages caused by the bird flu outbreak in late 2023, which had resulted in the culling of more than eight million chickens.
The local poultry industry has been extremely vocal in arguing that these rebates are detrimental to domestic producers, raising the risk of supposed dumping and job losses.
However, ITAC must not fall prey to tunnel vision. It must consider the bigger picture in terms of our current economic realities, and the vital role that these rebates play in ensuring the availability of affordable nutrition for South Africans. This means that the real state of the market, and the impact of these rebates must be scrutinised more closely.
For example, the local industry’s argument that the rebates have caused an oversupply does not hold up under closer inspection. In a true oversupply scenario, market dynamics would dictate a drop in prices to stimulate consumption.
Yet, according to the latest Household Affordability Index, chicken prices remain elevated, while the price of eggs had risen 31% year-on-year by April.
Weighing protections for businesses and households
The focus of the rebates has been on products that are essential for lower-income households and the manufacturing sector. Duties on boneless chicken, often an expensive cut of meat, were only lowered from 42% to 12%, and duties on bone-in portions from 62% to 37%. The greater focus was on carcasses and offal, including chicken feet, livers, giblets, necks, and skins, where import tariffs were reduced to 0%.
These are staple proteins for lower-income families, who are particularly susceptible to price fluctuations. The local poultry industry simply cannot meet the demand for these products, necessitating imports to complement supply.
Chicken livers, for example, have become a particularly popular ingredient for use in school feeding schemes, as an affordable protein source. Hume clients in this space have reported that they are buying every liver the local industry can produce for canning and distribution, and still can’t source enough. It is little wonder, then, that the price of chicken livers had risen 11% year-on-year by April, despite the introduction of rebates.
Meanwhile, it’s important to realise that rebates also support the local manufacturing sector, which creates value-added products. For example, some manufacturers use imported chicken wings to create products for major restaurant franchises. This process adds value and creates employment opportunities, filling a gap that the local industry cannot meet in sufficient quantity.
Busting myths on bone-in chicken
So, while bone-in portions are often cited as the bone of contention, the reality is that local producers primarily profit from these products. Importers are not competing significantly in this sector, as demonstrated by the substantial reduction in import volumes over the past five years to negligible levels.
Likewise, import volumes for bone-in portions under the rebate have not significantly increased, disproving claims that they threaten local jobs.
Additionally, attacks on bone-in portions as a replacement product that poses a threat to the market for individually quick frozen (IQF) products are misleading. Imported bone-in products and IQF products differ significantly in quality and price, as IQF portions sell for about R28 per kilogram and imported leg quarters for R38 per kilogram. They simply do not compete in the same market.
A balanced, strategic approach
To be clear, protections for local producers, jobs, and livelihoods are crucial. However, these protections must be fairly balanced against the understanding that chicken is a vital staple food in local diets, especially among lower-income and vulnerable families. Amid our many other financial pressures, any unnecessary price increases resulting from market monopolies carries the risk of delivering a knock-out blow to consumers and businesses.
Decisions regarding the important issue of import duties should therefore be evidence-based and rooted in a deep understanding of market dynamics.
All facts must be tabled. Transparent and comprehensive data is needed to accurately assess the state of the market. No one should be allowed to pick, choose or manipulate the numbers they present, and all representations must be considered. Apples must be compared with apples.
With all this in mind, ITAC should then strategically extend rebates for businesses with manufacturing permits on key products, such as wings, drumettes and chicken livers processed for distribution to school feeding schemes, introducing zero duties in perpetuity. Similarly, it must consider the issue of food security act to prevent unreasonable price hikes on critical low-cost items.
By maintaining tariff rebates on these items we can ensure that South Africans remain able to put food on the table.
Roy Thomas, logistics and operations director of Hume International
BUSINESS REPORT