A decades long surge of predatory imports
South Africa’s poultry industry has experienced a 400% surge in chicken imports over the past two decades. This jeopardises the country’s food security and negatively impacts on job creation and economic growth. It is believed that a large percentage of these imports are predatory – dumped below the cost of production.
Brazil and the EU have become a major threat to the South African chicken industry, and by extension the grain industry which supplies huge volumes of poultry feed. They are a threat to the Southern African region, where the poultry industry is a major employer and a significant contributor to local economies and food security.
Poultry imports from Brazil have been climbing steadily in recent years. Official import statistics from the SA Revenue Service show that in 2017 South Africa imported 524 000 tonnes of chicken, worth R5.9 billion. By 2018 this had risen to 539 000 tonnes, worth more than R6 billion. In both years, more than 60% came from Brazil, which is world’s largest exporter of chicken meat.
What these numbers mean
Chicken imports to South Africa reached a record high in 2018. Imports of bone-in portions alone doubled from 145 000 tonnes in 2013 to 287 000 tonnes in 2018 – a 23% increase on the previous year.
Imports were temporarily constricted in 2020 due to the impact of the Covid-19 pandemic, which disrupted global supply chains. The government also granted import tariffs of 62% for frozen bone-in chicken portions and 42% for frozen boneless portions from non-EU countries..
The share of imports in domestic consumption is projected to reach 21% by 2030, from an average of 24% in the 2018-2020 base period. While substantially slower than in the past and not reaching the peaks of 2018, imports are still projected to increase over the coming decade.
Source: Baseline Agricultural Outlook 2021 – 2030, published by the Bureau for Agricultural Policy (BFAP).
Source: The South African Poultry Association tariff code report, based on SARS-verified trade statistics. The term ‘poultry’ – in the graph above – refers to chicken, turkey, ducks, geese and guinea fowl.
Up to 30% of all chicken is imported
South Africans consume some 25 million chickens per week. Of this, 19 million come from local producers. The balance – equivalent to 6 million chickens per week – is imported.
Imports make up nearly a quarter of local consumption, and exceed the output of any local chicken producer.
Chicken imports reached a record high in 2018, when 566 000 tonnes was imported at a cost of R6.1 billion. Imports in 2019 were 5.5% higher than the five-year average from 2013-2017.
This is poultry that could and should be produced in South Africa, in local facilities creating local jobs. Instead, local production is being squeezed and jobs are being lost.
Chicken is South Africa’s cheapest and most popular form of animal protein, and demand is rising. However, increased demand is being taken up by imports, and local producers are suffering as importers grab market share unfairly.
What exactly is dumping?
Dumping is an unfair trade practice designed to capture a market and ultimately gain pricing power.
A free market is eminently desirable, something every nation ought to strive for. Economists who quantify the degree of freedom in the various global markets have largely found a positive relationship between these free markets and the rates of economic well-being.
A free market promotes efficiencies for participants, while the healthy competition spurs lower prices for consumers. Unfortunately, it is not uncommon for market players to participate in anti-competitive behaviours; behaviour that reduces or completely inhibits competition. Among the more pernicious of these behaviours is market conduct that amounts to an abuse of dominance, which encompasses a host of unfair, unethical trade practices aimed at bullying the other participants.
The abuse of a dominant position occurs when a dominant market participant has the motive to capture the market, often to gain pricing power. When this dominant player has pricing power, it forces all the other market participants to follow their lead.
One such an example is dumping; an unfair trade practice that is designed to capture a market in which the dominant player will face little to no competition, and consequently, no countervailing power. These market participants price at a steep loss, way below their cost, and often lower than more efficient competitors, to ultimately gain pricing power. When a market participant abuses their dominance in such a way, they are engaging in predatory trade.
You can only really engage in predatory trade if you are dominant. A dominant player doesn’t even have to have the biggest market share, just the capability to set the agenda for the market, forcing other participants to follow their lead, or refrain from participating. But markets have dominant players all the time, that in and of itself is not illegal, unethical or predatory – competition law states that if you are dominant, you are not allowed to abuse that dominance at the expense of other market participants.
All countries have competition law, as these laws are necessary to regulate the market in order for the market to operate efficiently for the benefit of its citizens. However, these domestic competition laws cannot be applied extra-territorially, which has led to Brazil, the EU and the USA, who are dominant producers globally, to abuse their dominance in the South African market – they are pricing in such a way as to capture the market to ultimately gain pricing power, setting the agenda (price) and driving out local competition, hurting local industry today, and the consumer tomorrow.
When that happens South African consumers will pay the Rand/Dollar exchange price for poultry. While entrepreneurs are rewarded for efficiency and innovation, there’s no way they can win against a market power that abuses their dominance in such a way.
The vast jurisprudence on competition law illustrates that the conduct of dominant market participants is very often anti-competitive, designed to undermine the discipline that a healthy market imposes, and consequently unfair. When that unfairness is designed to drive out the competition, it is predatory trade.
