Chicken dumping fee to hit consumers

The chicken market has been in the headlines this week over alleged dumping by Brazilian producers. SARS has imposed a provisional levy on Brazilian chicken following an investigation by the International Trade and Administration Commission (Itac) which found that some Brazilian companies had dumped their products at a value of 60 percent less than in their respective markets. Other groups had dumped their products at a margin of more than 40 percent below the prices in Brazil.

The imposition may be good news for local poultry producers, while consumers, importing firms and Sars could lose when all factors are considered.

Brazilian poultry producers dumped boneless cuts in the Southern Africa Customs Union markets (Sacu) of Botswana, Lesotho, Namibia, South Africa and Swaziland.

Zoleka Xabendlini, the senior manager of trade remedies at Itac, said a detailed investigation found that some Brazilian chicken goods had financially wounded Sacu producers.

The investigation was launched in June last year after the commission found compelling evidence that chicken products from Brazil were being imported at dumping prices into the local market.

The application against dumping practices was made by FC Dubbleman and Associates on behalf of the Southern African Poultry Association, which represents 80 percent of Sacu poultry producers.

The local companies represented by the poultry association include Rainbow Chicken, Early Bird Farms and County Fair Foods.

Xabendlini said the aim of the anti-dumping duty protection was to get rid of unfair competition from foreign producers. “The aim is not to ban imports altogether,” she said.

According to data supplied by Itac, imports of whole frozen chicken from Brazil increased by 300 percent from 2008 to 13 million kilograms in 2010. Imports of boneless portions from Brazil added 52 percent from 2008 to 25.4 million kilograms in 2010.

Additional Reading

Brazil vows to take poultry fight to WTO
While the Brazilian chicken industry said yesterday that it would take the fight to the World Trade Organisation (WTO), local producers have vowed to prove that other imported chicken products do not comply with WTO rules.

Watchdog ready to pounce on local chicken cartels
While the local poultry industry is urging the authorities to protect it against the alleged dumping of Brazilian chicken, the competition watchdog is wrapping up investigations into anticompetitive conduct by some of its members.

Comment by Peter Bruce, editor of Business Day: Dumping can be damaging

THE claim that placing duties of up to 63% on imports of Brazilian chicken cuts will not push up domestic chicken prices is ludicrous. Duties of this magnitude will either prevent the imports from taking place at all or be passed on to consumers, contributing to overall food inflation either way. That the majority of investors agree is evident from the surge in the share prices of domestic poultry groups Rainbow Chicken , Country Bird Holdings and Astral Foods since the announcement was made on Monday.

It could be argued, with some justification, that the dumping of Brazilian chicken products on the South African market has resulted in the prevailing price of chicken being artificially low, and that imposing duties will simply push prices back up to their “correct” level. But it cannot be denied that this is likely to lead to hardship, especially among the poor. So why is the government doing it?

Ordinarily, importing cheap chicken would be beneficial, since it would keep local producers on their toes. Embracing a protectionist policy to compensate for uncompetitive domestic industry would be counterproductive, and a violation of SA’s international free trade agreements.

But there is a need to distinguish between dumping and comparative advantage. Comparative advantage occurs when a country can produce and export goods at a lower price than it can be produced domestically. Dumping occurs when a country exports a surplus at a price below what it charges in its home market. In the case of imported Brazilian chicken, a preliminary investigation by the International Trade Administration Commission has found that whole, frozen chickens were dumped in SA at prices 63% lower than in Brazil. Under such circumstances protecting your industries is both legitimate and necessary.

The effect of dumping on local producers is immediate and extremely damaging in the long run. As the cheaper produce floods the market, domestic companies are squeezed out, leading to job losses and reduced competition. When the surplus in the dumping country is corrected, as it invariably will be before long, not only do the cheap imports dry up but the domestic industry’s capacity has been destroyed and the country is forced to import more expensive chicken from other sources.

That said, it is always going to be tempting for domestic producers to cry dumping when they are merely inefficient compared to foreign competitors and are hoping for protection from the state. In the case of the Brazilian chicken, the additional duties will be imposed for a preliminary period of 26 weeks, while a more thorough investigation is concluded. Until then, importers will be walking on eggshells.