By Colin Phillips
ITAC (International Trade Commission of South Africa) has decided that since Brazilian chicken producers were selling chicken pieces to South Africans for low prices, these producers should pay an extra tariff of up to 63% when they want to sell their products to the South African market. ITAC justifies this with several arguments, but the root of the action comes from SAPA (South African Poultry Association), whose business strategy relies almost entirely on lobbying government to crush their opposition.
The reasons and justifications given are the usual protectionist talking points: the chicken industry is under attack from vicious foreigners who want to destroy South African industry and jobs, and the tariffs are needed to create or protect local jobs, boost industry – all without costing the consumer anything.
ITAC’s goes so far to claim they do not expect “substantive price increases for consumers” arising from the price increases their imposing on the producers. Maybe not, but neither will there be price declines for consumers, either.
An industry under attack, needing protection
The fact of the matter is that SAPA is hardly a fair player on a level-playing field. SAPA has, since its inception, been lobbying the government for subsidies for themselves, and tariffs for everyone else. Recently, SAPA has formed a subsidiary, the Developing Poultry Farmers Organisation (DFPO) to more effectively lobby for special treatment. This includes things like getting back room deals to ensure that state institutions like hospitals only ever buy locally produced poultry products, even when the price difference is substantial.
But if there was a conspiracy of Brazilian producers trying to gain a significant market share in South Africa, and if the plan was to consistently undercut the poor innocent SAPA producers until Brazilian chicken products dominated the SA market – what’s the worst that could happen? SAPA seems to think that once they’re driven out of business by the greedy Brazilians, there’d be nobody able to protect SA consumers once the Brazilian producers started pushing up their prices.
This ignores three things: (1) there’s nothing stopping SA consumers from buying chicken from, say, Botswana, or France, or anywhere besides Brazil (except maybe stupid tariffs) if the price from Brazil is too high; (2) if the price of chicken rises suddenly, South Africans will simply buy other foods until the poor neglected SA chicken industry recovers, and sells chicken at a lower price than the Brazilians; and (3) cheap chicken products are good for the South African economy.
Chicken jobs are the only jobs
DFPO estimates that if only they could get the government to add enough tariffs on imported chicken products, they could “create” 7000 additional jobs in the chicken products industry. This stands to reason – if consumers can’t get their cheaper chicken products from Brazil, at least some of them will buy the local chicken products, spurring the need for more local chicken production. But at what cost?
Say a South African consumer is considering buying two identical products – the Brazilian chicken product costs R20, but the local is lekker equivalent costs R30. If the consumer chooses the “patriotic” route, then R30 stays in the country, to help create the 7000 jobs the DFPO promises. But if the consumer chooses the Brazilian equivalent, they have R10 more to spend on something else, which helps stimulate growth in that industry (which, yes, creates jobs). The R20 they spend on Brazilian chicken helps the chicken industry in Brazil – the fact which SAPA and ITAC managed to grasp – but that isn’t the whole story.
But why assume that South Africa must have a chicken industry? If Brazilians, Namibians, or Europeans can produce and distribute chickens for less than South Africans can and service total demand, instead of artificially boosting prices to ‘protect’ local industry, why not let the market mechanism work, by freeing these resources to produce those things we are best at producing?
By propping up unsound and malinvested industries, it makes the South African economy less efficient, as it by definition redistributes wealth from more profitable sectors of the economy to less profitable ones – like the chicken industry.
It would be better for those individuals currently employed in the chicken industry to be re-employed in other sectors where they are ensured a brighter and more sustainable future.
SA consumers won’t care about a price increase
The most exasperating dishonesty displayed by ITAC is the statement that this would not entail “substantive price increases for consumers”. This is ludicrous. A few extra Rands on the price makes no substantive difference to the wealthy, but the poor in this country spend up to 70% of their income on food. Even a small increase can make the difference between being able to buy an item and not.
South African Poultry producers do not need “protection” from “dumping”, they need to improve their business practices, lower their costs, and lower their prices. The protection of the local chicken industry destroys jobs, by reducing the money consumers have available to spend on things other than chicken. The Brazilian producers was willing to provide a product at a price that was more affordable to the poor, and for that they have been punished, for the benefit of the fat cats at SAPA who can’t stand competition.
The bottom line is the intervention by the government to protect the local chicken industry makes the economy less efficient and less productive, prevents the economy from allocating resources to producing those products on which we can compete globally, and also harms the poor who would have benefitted tremendously from lower chicken prices.
Colin Phillips is an Optimisation Analyst working in the Logistics industry. He resides in Johannesburg, South Africa. He holds an Honours degree from Wits in Operations Research.