Cheap Brazilian imports threatening survival of SA’s chicken industry
The steep drop in RCL Foods’ earnings is a taste of what’s to come if we don’t protect our industry and stop the onslaught….
When a big player in the food industry starts to show distress, it is time to sit up and listen. The announcement that RCL Foods’ first-half headline earnings fell by more than a quarter, and CEO Miles Dally’s explanation that it is largely due to dumping, certainly underlines the dire situation the SA chicken industry finds itself in after a record year of dumping in 2018.
What happens at the top of the value chain most certainly mirrors the picture lower down, and the effect of dumping on small-scale farmers is nothing short of disastrous.
Brazil has now become the major threat to the SA chicken industry, and by extension the grain industry, which relies on poultry feed purchases for a large part of its income. In fact, the threat looms over the whole SA region, where the poultry industry is a major employer and a significant contributor to local economies and food security.
As its other major markets have closed doors against Brazil due to food-safety concerns, this massive exporter of chicken is clearly targeting SA with ever-increasing volumes of cheap chicken portions.
Years of substantial agricultural subsidies and profits from premium breast meat sold to the US and elsewhere enable Brazil to dump massive amounts of leg quarters and other “unwanted” cuts in SA at prices they can manipulate.
This process is helped along by importers and middlemen who buy in bulk and make vast profits by selling into the SA market at, or just under, the price of locally produced chicken.
In this way imports have gained market share, taking up increased local demand while SA producers lose out, workers lose their jobs and small towns in the countryside die.
The EU, with production costs far higher than those of SA’s efficient farmers, began the assault of dumped chicken nearly a decade ago. That was suspended in 2016 because bird flu in Europe closed their borders, but it is likely to resume in the near future.
It has been staggering to watch the speed with which Brazil identified the gap and stepped in — its chicken exports to SA rose by 50% after the EU ban. Imports from Brazil have doubled since 2014, and it is now the main threat to the local industry, which is fighting for survival.
And while big producers such as RCL can diversify and invest in other sectors that can offset the losses, the thousands of smaller farmers who have no other recourse are slowly bleeding out.
The impact on small-scale farmers and new entrants is disproportionately higher. Many black new entrants with government funding stand no chance against this onslaught because they have to service debt in addition to fighting the Brazilian imports.
Poultry imports from Brazil have been climbing steadily. Official import statistics from the SA Revenue Service show that in 2017 SA imported 524,000 tons of chicken, worth R5.9bn at import prices.
By 2018 this had risen to a record 539,000 tons, worth more than R6bn on import and possibly double that at retail level. In both years, more than 60% came from Brazil, which is world’s largest exporter of chicken meat.
This is poultry that could and should be produced in SA, in local facilities, creating local jobs. The effect is being felt throughout the poultry value chain, including the grain and seed industry. Imports are feeding rising local demand at the cost of local production and local jobs.
The SA Poultry Association (Sapa) has estimated that 30,000 jobs could be created by replacing chicken imports with local production. With the right government assistance, this could transform the agricultural sector. This potential growth could go a long way to addressing the government’s goals for transformation, land redistribution and food security.
This is why the Sapa has applied for an 82% ad valorem import tariff on bone-in and boneless frozen chicken from many non-EU countries, including Brazil. Last year, SA imposed a 35% safeguard duty on EU chicken, to be lowered in steps over the next four years. Now protection is needed against Brazil.
Brazilian poultry imports have doubled since 2014, rising from 15,000 tons a month in October 2014 to 30,000 tons in October 2018. By 2017, they were 44% higher than the previous year, and last year that rose a further 6%, with Brazil eventually accounting for 61.5% of SA’s poultry imports.
Unfortunately for the consumer, low import prices are not passed on to them. Imported chicken is sold at or just below the price of local chicken, ensuring market share growth and substantial profits for importers and middlemen…..