30 July 2014
Feedinfo News Service - 30/07/2014
INTERVIEW: Are Anti-Dumping Duties Protecting South Africa's Poultry Industry?
Source: Feedinfo News Service
30 July 2014 – South Africa recently announced anti-dumping duties against imports of frozen bone-in chicken from Germany, the Netherlands, and the U.K.
The preliminary tariffs, which range from 22% for the U.K., and 73.3% for Germany came into effect on July 4th and will expire at the beginning of January next year.
The move follows a complaint brought last year by the South Africa Poultry Association (SAPA) to the International Trade Administration Commission (ITAC), which found that there was prima facie proof of material injury to the local industry. This allowed the industry to circumvent a 2001 free trade and co-operation agreement, which prevented South Africa from imposing normal MFN (most favoured nation) tariffs against E.U. countries.
According to SAPA’s CEO, Kevin Lovell, ITAC’s decision “confirms that the three European countries are dumping bone-in portions into South Africa,” and contributes to the industry’s future development.
Association of Meat Importers and Exporters of South Africa (AMIE) CEO David Wolpert, on the other hand, argues that the implementation of preliminary dumping duties is a breach of international regulations, and will do nothing to solve the problems of South African poultry producers.
Feedinfo News Service spoke to Lovell and Wolpert to get a better understanding of the South African poultry industry’s performance in a highly competitive global environment.
The S.A. Poultry Industry, a USD 3 Billion Giant
With a gross value of more than USD 3 billion, and producing more than 1 billion birds slaughtered, and 1.4 million tons of meat every year, South Africa’s poultry meat industry is the country’s largest individual agricultural sector, and contributes almost 17% to the total gross value of agricultural products, according to industry figures.
Rainbow Chicken Limited (a division of RCL Foods) and Astral Foods are the industry’s main players, making up about half of the domestic sector (Rainbow produces approximately 235 million broilers per year, and Astral Foods about 220 million broilers per year). The country’s third largest producer, Country Bird, produces 68 million broilers per year, or 7% of total broiler production.
The U.S. government estimates that South Africa’s top seven companies provide about 75% of total broiler meat in South Africa, while hundreds of smaller producers supply the balance. The country’s biggest chicken producers have all adopted the integrated production model, which allows them to manage the entire supply chain, including the production of day-old chicks, broiler farms, feed milling, meat processing, and distribution.
As the biggest supplier of meat to local consumers, the poultry industry is an important part of the South African economy, says Kevin Lovell. However, he argues that cheaper imports from countries such as Germany and the U.K. have negatively impacted local producers over the past five years and has resulted in the industry stagnating.
“Imports have lately been on an upward trajectory,” he explains. “Our previous peak was in 2006, followed by a fall in volumes and then a sustained period of increases. Last year, imports of all poultry products were close to 400,000 tons.”
In applying for a tariff increase against cheap imports, the SAPA aims to offer local producers a level playing field. “These various trade measures tend to lead to displacement of the source of cheap and dumped product more than to a reduction in volumes,” says Lovell. “We do not seek to stop imports, only to make it harder for importers to use cheapness as their primary marketing tool.”
South African Poultry Association
Brazil is currently South Africa’s most important trading partner in terms of imported poultry meat, with a market share of more than 50%. However, Brazil’s dominance has declined over the past few years, partly as a result of an increase in the general (MFN) tariff on most products which came into effect in September 2013. According to recent U.S. government figures, E.U. poultry producers took advantage of that decline, and steadily gained a greater share of South Africa’s import market.
“The SAPA applied for a range of Most Favored Nation (MFN) tariffs. These excluded all of the EU countries, nine of which currently enjoy the right to export to South Africa (i.e. we did not apply for tariffs against the UK, the Netherlands and Germany). The trade agreement between the E.U. and South Africa led to a winding down of MFN tariffs on EU poultry which have been at zero since the beginning of 2012,” notes Lovell. “To put that into perspective, imports of frozen bone-in portions from the EU made up about 0,5% of imports in 2009. They now make up more than 85% of all frozen bone-in portion imports.”
Association of Meat Importers and Exporters of South Africa Did you say ‘fair’?
However, not everybody is happy with the new tariffs introduced against European poultry producers. The South African Association of Meat Importers and Exporters (AMIE) has been especially vocal against the adoption of such tariffs, arguing that ITAC’s investigation, as well as the SAPA application on which the investigation was based, were both flawed.
“The provisions of the Anti-Dumping Act were continuously flouted, breached and ignored. Much of the information used was inaccurate and faulty,” says AMIE CEO David Wolpert. “Product comparisons were hopelessly incorrect, while there were numerous patently incorrect calculations upon which conclusions were based. A very large amount of relevant and important information, statistics, and calculations as supplied by AMIE, South African importers, the European Union Commission, and E.U. exporters were totally and inexplicably ignored, as were a number of direct communications and enquiries with ITAC.”
Wolpert also claims that imports should not be used as a scapegoat for a local industry plagued by high poultry feed and fuel costs, as well as large labour cost increases and strike actions.
“Imports played an insignificant role in the problems of local producers,” says Wolpert. “Proof of this is the current recovery being achieved by local poultry players despite the so called ‘import problem’. In fact, local industries market share increased during the period reviewed by ITAC.”
According to Wolpert, imports of comparable poultry products represent a marginal amount of South Africa’s poultry market (or about 10% of total consumption), while South Africa's chicken imports from the U.K., the Netherlands and Germany represent less than 7% market share. “We do not see this as a threat to local industry, who should rather focus on their self-created problems as well as opportunities,” he says.
Even if uncertainties remain as to the effect of the recent duty increases, Wolpert hints that the measure is likely to push prices up in the following months. “At the moment there is a surfeit of chicken products in the market. Demand has slackened off mainly due to the current economic climate and the recent strike activity which caused much domestic hardship,” he explains.
“In addition, importers, pre-empting dumping duties, brought in a lot of product over the last few months. For this reason there is unlikely to be a sudden price increase. However, as stocks reduce, prices will be affected.”
Wolpert also argues that the high provisional dumping duty imposed on German products will have a “huge effect” on the country’s exports to South Africa. As a result, he expects to see increased imports coming in from other E.U. countries like Spain, France and Belgium.
“European exporters as well as the E.U. Commission are understandably enraged by the above breaches of WTO regulations as well as South Africa's own anti-dumping regulations,” says Wolpert. “We should not be surprised if ITAC's decision is challenged in court or if the EU approaches the WTO for assistance in this matter. In addition there is presumably a risk of EU trade reprisals against South Africa.”
Lovell retorts that higher duties will not shut off importers from the South African market, but create a fairer trading environment. “These anti-dumping duties may not be punitive and are designed to correct unfairness, meaning that imports should be able to continue although the importers would now have to compete with local producers on equal terms rather than unequal terms,” he claims.
While he concedes that the share prices of South African poultry companies have generally increased in recent times, Lovell stresses that the operational performance is not near a sustainable level. “To see imports as an ‘insignificant’ part of the problem misses the point,” he notes. “You cannot expect to compete properly if the trading rules are not the same for all. Dumping is an unfair practice: stop doing it and normal market competition will resolve the rest of the issues at hand.”
Moreover, Lovell hopes that the measures will allow South Africa’s broiler industry to grow, and better cater to local demand. South Africa’s poultry consumption, which is expected to reach 1,750,000 metric tons this year (compared to 1,524,000 metric tons in 2010) could grow by 50% in volume terms if disposable incomes allow for the purchase of the extra meat, he predicts.
“We have limited pork consumption for cultural and religious reasons and lamb/mutton is very expensive, so the meat ‘share of stomach’ is largely a beef vs. chicken debate. Chicken consumption is about double that of beef, mostly for reasons of cost. South Africans like to eat meat- they simply cannot afford to eat as much as they would like.”
Lovell argues that South Africa’s broiler production (which amounted last year to almost 1,400,000 metric tons) will soon be able to meet domestic demand, provided that imbalances in the global trading environment are corrected.
“We tend to import the surpluses and waste products of the rest of the world. South Africans eat all parts of the chicken except for the blood and feathers so our market is well balanced. If prices reflect true cost we could easily ramp up production and there is some breeder capacity not being fully utilized at present. This means the ramp up of production could be quite quick if the market would allow it,” he says.
Waiting for Take-Off
Alltech Vice-President Aidan Connolly recently told Feedinfo News Service that South African poultry producers can compete with the best, and that the country could be described as a ‘knowledge leader’ in the field of agricultural development.
Lovell agrees with this analysis, stressing the enormous progress that has been made in terms of quality control and production efficiency. “The technology used locally is in line with global practices and the cold chain is well developed with the variance to developed world markets being that the great bulk of the market (around 90%) is for frozen product,” he says.
“Feed safety is being improved all the time though an industry Code of Practice which is independently audited. We seem to have avoided some of the feed-related problems found elsewhere in the world although that is no reason to be complacent. Food safety is controlled by the State but the private standards of the large food retail chains add an additional layer of control. Consumers rely mostly on these private standards for assurance.”
Looking forward, Lovell predicts that the South African industry will grow in scale more than style. Other African countries will follow suit, reflecting the gradual shift from the subsistence farming model to larger commercial operations.
“To create an industrialized poultry sector in these countries, urbanization needs to increase and disposable incomes grow. This will happen; the question is when? In my view I see a period of strong volume growth in various Asian countries as the main global driver over the next five to ten years and then I see that Africa will be the main driver of growth. The developed world will have a smaller percentage of the global population by 2050 and we in Africa will be around 2 billion people. We will be a bigger market in time than the developed world is now.”
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