TRALAC - Trade Law Centre

Unembargoed: AGOA theatrics expose abysmal planning

Monday, 09 November 2015 Published: | SONGEZO ZIBI

Source: Business Day (South Africa)

Many South Africans are in a huff. Last week, US President Barack Obama sent a terse, firm letter to the US Congress, informing it that his administration was putting SA on 60-day notice before it withdrew the right to duty-free exports of agricultural products.

SA refuses to import certain categories of US meat, especially chicken, over concerns that it is "disease-affected". The Americans argue that the ban should be limited to affected areas, not the entire country. The South Africans disagree, so we have a stalemate. It is a bit more complex and nuanced than that, which we explain elsewhere in these pages, so for lack of space, I won’t go into that level of detail here.

This is not about how much chicken the Americans want to import here. That was resolved months ago, when a cap of 65,000 tonnes of chicken per year was agreed upon. That may sound like a lot, but it is not.

Brazil, our Brics friend, is by far the largest exporter of chicken to SA. In August, Brazil accounted for 51.6% of all poultry imports. In real numbers, for the first eight months of the year, total poultry imports from Brazil amounted to 168,666 tonnes, dwarfing the 65,000 tonnes per year agreed to with the US.

The Netherlands alone exported a shade less than 74,000 tonnes of poultry to SA last year. We are a fertile market for all sorts of countries to sell extra chicken to.

The issue with the US has made so many people angry that some are even suggesting we tell the Americans to take their African Growth and Opportunity Act duty-free concessions and shove them down the Mississippi River. We are, as the popular narrative goes, not going to be told what to do by "greedy, power-mongering imperialists".

I can carry on all day about one theory or another. What I know is that this revives our worst jingoistic impulses. In a country whose politics is built on believing conspiracy theories that range from the lunatic to the realistic, such talk is addictive and intoxicating. Unfortunately, it can detract from some tough questions we have to ask our politicians so we can have a real discussion about sector growth and jobs, instead of marching to demand that they be created out of thin air.

According to a paper written by the Department of Agriculture a few years ago, SA has a shortage of chicken. Yes! We don’t produce enough chicken. In fact, to this day, none of the large chicken producers complains about surplus chicken. They just complain that foreign chicken is cheaper and, therefore, threatens jobs.

Forgive me, but how does it threaten jobs when you cannot supply enough to the market? Isn’t it that when you increase production capacity, you need more people? Am I missing something? So the question is whether the poultry industry is protecting jobs or its ability to influence price and, therefore, profit margins.

Why the hell can’t we grow chickens and satisfy domestic demand anyway? Isn’t this where industrial and agriculture policy kick in?

Perhaps I am naïve, but if we had spent enough time growing our capacity to produce chicken, we wouldn’t be getting involved in a potentially damaging fight with one of our largest trading partners.

Second, who is the "poultry industry", really? Is it not the same guys who some of the same patriots call "white monopoly capital"? RBC and Astral control about 50% of the domestic market. They are both "black economic empowerment compliant", so they’re not breaking any laws.

In March, Astral said it had increased capacity by a whopping 550,000 chickens per week!

There is a market, after all. It’s just that the domestic producers can’t feed all of it, and they’re not keen to have others join in the fun. There is something that imports do, of course, which is to discipline the pricing of the dominant domestic players.

So here is the second question: Is our poultry industry under threat because it is an oligopoly wanting to shut out competition? In a focused country, we would be talking about lowering barriers to entry for small, black smallholder chicken farmers, but we won’t. It is far sexier to engage in the politics of imagined international economic sabotage than to deal with real issues.

The jobs whose absence we lament daily come from building the real economy by exploiting substantive opportunities in the market.

If we spent effort on that, the picture could be different, but this is too complex for us.

If you don’t believe me, consider this. In Mqanduli where I am from, a live broiler costs upwards of R75. The reason it is so pricey is that no one produces chicken commercially there, so they come in by truck from KwaZulu-Natal, from some of the large, established producers.

The producers take a healthy margin, and so do the middlemen and retailers. Two years ago, a friend in corporate finance and I calculated that a solar-powered operation that produces 600 broilers a week would pay back the investment in two to three years at R60 per chicken. But there is no reliable running water there, so the idea stalled.

While we fret over the geopolitical implications of chicken, millions continue to lose hope of ever having a stable income or a job. So, enjoy the SA-America soapie.

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