Summary
In December 2016 South Africa introduced a 13.9% safeguard duty on poultry imports form the EU. Both South African poultry producers and food sector trade unions have been critical of the low level of safeguard duties applied, in the face of a growing levels of job losses. In the face of the failure of past efforts to curb imports of EU poultry meat the South African government is looking at a range of other measures which could be introduced to support the local poultry industry. Press reports suggest the EC may challenge the new safeguard duties on technical grounds, since EC officials believe EU exports are not the cause of the current crisis in the South African poultry industry. How the EC responds to these safeguard duties will be an important test case of how flexible and responsible the EC is likely to be in the implementation of EPA provisions in the months and years ahead.
On 9th December 2016 the South African government introduced ‘a “safeguard duty” of 13.9% on frozen chicken legs imported from the European Union’. (1) This provisional import duty which is scheduled to run until July 2017, is in response to appeals from the South African poultry industry and the food workers union, for government action against imports of poultry meat from the EU which have grown strongly with the benefit of trade preferences which are not extended to any other major third country supplier. Between 2009 and 2015 there was a more than 41- fold increase in EU poultry meat exports to South Africa, with a further 35% increase from January to October 2016, compared to the corresponding period in 2015. (5)
In January 2017 one of South Africa’ largest poultry producers Rainbow Chicken Limited (RCL) announced it was selling 15 of its 25 farms in the Hammersdale region and would be laying off 1,350 workers by the end of January 2017. (7) This followed a projected 62% decline in RCL’s end of year earnings on its chicken operations in 2016. (12) Astral Foods faced a similar projected 70% loss of earnings on its chicken operations. (13) Other small poultry producers, such as Mike’s Chickens in the Limpopo region have already closed down with the loss of 1,000 jobs. Country Bird which operates in the Free State and North West regions is reported to be retrenching 1,500 jobs. (7) Overall while bigger poultry producers have the financial weight to stay afloat ‘since 2012 eight small to medium sized poultry farms have closed’. (14) Currently some 6,000 jobs are seen as being under imminent threat in poultry processing alone, (10) with a ‘further 20,000 being under threat in the maize and soya industries’. All in all ‘chicken producers buy nearly half of the country’s maize crop’, with knock on effects of poultry company closures being of major economic significance. (14)
RCL’s Managing Director claimed his ‘company’s troubles could end and jobs (be) saved overnight if the government placed tighter regulations on imports’. (7) He claimed if government did not intervene soon further jobs would be lost. This threat of job losses saw the General Secretary of the Food and Allied Workers Union calling on the South African government to impose ‘hefty tariffs on these chicken prices’, amounting to 40%. (8) The South African Poultry Association had earlier requested safeguard duties of 37% on European bone-in-chicken imports in 2015 (9).
The CEO of the South African Poultry Association Kevin Lovell described the 13.9% safeguard duty as ‘grossly inadequate’, claiming if it is wasn’t increased ‘the impact on the industry – which is already in the process of closing plants and retrenching workers – would be devastating’. (9) Lovell maintained the South African poultry sector was in ‘crisis’, with the industry simply being unable to compete with unfair trade in ‘leftovers and waste which is dumped’ in South Africa. (8) He complained of the ‘different forms of subsidy for their chicken industries’ in countries such as the US, Brazil and EU member states, with this leaving South African producers at a competitive disadvantage given the local prices of yellow maize and soya based poultry feeds. (8) South African poultry industry representatives claim the South African ‘chicken industry is the fifth most efficient in the world, with production costs well below those in Europe’ (14) and see dumping of brown meat as a major factor in the current crisis in the industry since it prevents drought related cost increases from being passed on to consumers. (14)
Given current developments SAPA CEO Lovell has expressed fears that the South African poultry sector could go the way of the Ghanaian poultry industry which has ‘collapsed because of EU dumping’. He described current trade practices as ‘a form of post-colonial oppression’. (7)
Other local economists take a different view arguing the economy should work for consumers and that the government should rather than raising import tariffs, should help local producers lower costs by providing ‘safe and reliable infrastructure, cheaper electricity and better roads’ (7) Broader studies undertaken by the World Bank suggest have suggested that that using effective competition policies to tackle cartels in the wheat, maize, poultry and the pharmaceutical sectors has contributed to lifting around 202,000 people ‘above the poverty line through the lower prices that followed’. (2)
The safeguard duties introduced in December 2016 were the result of an International Trade Administration Committee (ITAC) investigation initiated at the beginning of 2016. (3) The South African Minister of Trade informed South African importers and the EU of the decision on 15th November 2016. (1)
Press reports indicate that the EU and local importers are likely to challenge the new duties on ‘technical grounds’. The safeguard duties were imposed under Article 16 of the EU-South Africa Trade development and operation Agreement concluded in 1999. However the agreement was repealed on 10 October 2016 when the new SADC Group-EU Economic Partnership Agreement came into force. (1) As the analysis from TRALAC in February 2016 pointed out ‘the difference in provisions on agricultural safeguards in the TDCA and EPA, and the respective institutional processes has important implications’. Specifically the ‘safeguard measures that may be imposed’, under the TDCA, ‘would become invalid at the time that the EPA starts to be (provisionally) implemented’. (3)
Technically, as from the 10th October 2016 any safeguard measures introduced would have needed to have followed the provisions of Article 34 of the SADC Group-EU EPA. These provisions are different to those under Article 16 of the EU-South Africa TDCA and require justification ‘on the basis of injury caused by trade which has occurred under the EPA’. It could be argued by the EC that since ‘the EPA has just come into effect it would be difficult to make such a case, at least for the time being’. (1)
This reflected the broader EU view that the difficulties in the South African poultry sector are not the result of EU poultry meat exports. As the EU Delegate to South Africa, Marco Cornaro maintained ‘it is a distortion… to think that it is the EU trade policy which is the origin, let alone the main source, of the current woes of the SA chicken industry’. Mr Cornaro argued ‘when people are losing livelihoods, trade deals can be a handy scapegoat’. Rather than imports of poultry meat from the EU, Mr Cornaro blamed ‘a severe drought pushing up feed prices, rising electricity costs’ and brine injection practices for the lack of South African poultry industry competitiveness, which in his view underlies the current poultry industry crisis in South Africa. (15) This reflected the views expressed by European Trade Commissioner Cecilia Malmstrom who wrote to Minister Davies saying ‘SA’s “structural problems” were more to blame for the industry’s problems than competition from Europe’. (16)
South Africa’s Trade and Industry Minister takes a very different view arguing ‘competitiveness issues are there’, and the government needed to work through these issues in close association with the poultry industry, but these issues were ‘not going to be solved if we just allow an influx of spare parts from around the world to come in to take over the market.’ (16). Minister Davies maintained ‘there is also a trade policy dimension’ (17) linked to the disposal practices for residual brown meat which needs to be addressed internationally.
Beyond the issue of the application of safeguard measures towards the end of 2016 the EU-South Africa trade in poultry began to be affected by the impact of Avian Influenza outbreaks in Europe. This saw the closure of the South African poultry meat market to a multiplicity of EU member states exporters, with by the end of 2016, seven of the ten EU member states involved in exporting poultry meat to South Africa facing an import ban in the light of outbreaks of highly pathogenic avian influenza (this affected imports from Holland, the UK, Germany, Hungary, Poland, Denmark and France). (1) By the end of 2016 only Belgium, Spain and Ireland were still exporting poultry meat to South Africa. (4)
Beyond the existing provisional safeguard measures ITAC is also ‘looking at additional measures to safeguard South African poultry producers against imported chicken’, once the provisional measures lapse in July 2017. (6) The South African government has already ‘established a national committee that will consider the challenges local poultry producers currently face’ (11) and is furthermore looking at:
- ‘the designation of domestic poultry products for purposes of public procurement’;
- promoting the exploitation of newly opened markets in the Middle East and
- the rolling out of incentive programmes to improve the competitiveness of local poultry production. (6)
Sources:
(1) Fin24, ‘SA slaps huge import tax on EU chicken legs’, 15 December 2016
http://www.fin24.com/Economy/sa-slaps-huge-import-tax-on-eu-chicken-legs-20161215
(2) Business Day, ‘Cross-border cartels in SADC area focus on poultry, retail, cement and milling’, 14 December 2016
https://www.businesslive.co.za/bd/business-and-economy/2016-12-14-cross-border-cartels-in-sadc-area-focus-on-poultry-retail-cement-and-milling/
(3) TRALAC, ‘ITAC’s agricultural safeguard investigation into chicken imports from the EU and the transition from the TDCA to the EU-SADC EPA’, 24 February 2016
https://www.tralac.org/discussions/article/9124-itac-s-agricultural-safeguard-investigation-into-chicken-imports-from-the-eu-and-the-transition-from-the-tdca-to-the-eu-sadc-epa.html
(4) Business Day, ‘Cheap chicken imports lead to severe job losses in hard hit Hammersdale 5 December 2016
https://www.businesslive.co.za/bd/companies/retail-and-consumer/2016-12-05-cheap-chicken-imports-lead-to-severe-job-losses-in-hard-hit-hammersdale/
(5) Committee for the Common Organisation of the Agricultural Markets, ‘EU Market Situation for Poultry’, 15 December 2016
https://ec.europa.eu/agriculture/sites/agriculture/files/pm-pp-15.12.2016-poultry_en.pdf
(6) Fin24, ‘DTI responds to Malema’s poultry tariff hike demand’, 13 January 2017
http://www.fin24.com/Companies/Agribusiness/dti-responds-to-malemas-poultry-tariff-hike-demand-20170113
(7) oil.co.za, ‘Rainbow Chicken on a knife edge’ 8 January 2017
http://www.iol.co.za/news/south-africa/kwazulu-natal/rainbow-chicken-on-a-knife-edge-7354387
(8) Business day, ‘Low poultry duty on EU ‘will decimate jobs in SA’’, 11 January 2017
https://www.businesslive.co.za/bd/companies/retail-and-consumer/2017-01-11-low-poultry-duty-on-eu-will-decimate-jobs-in-sa/
(9) Business Day, ‘Poultry sector calls for more protection’, 9 January 2017
https://www.businesslive.co.za/bd/companies/trade-and-industry/2017-01-09-poultry-sector-calls-for-more-rotection/
(10) Business Day, ‘Unhappy Christmas for farm workers with rise in chicken import dumping’, 14 December 2016
https://www.businesslive.co.za/bd/national/labour/2016-12-14-unhappy-christmas-for-farm-workers-with-rise-in-chicken-import-dumping/
(11) Business Day, ‘Committee to address dire state of poultry industry’, 9 December 2016
https://www.businesslive.co.za/bd/business-and-economy/2016-12-09-committee-to-address-dire-state-of-poultry-industry/
(12) Globalmeatnews.com, ‘Crisis point for South African poultry industry’, 31 August 2016
http://www.globalmeatnews.com/Industry-Markets/Crisis-point-for-South-African-poultry-industry
(13) Globalmeatnews.com, ‘Astral Foods warns of profit collapse’, 14 September 2016
http://www.globalmeatnews.com/Financial/South-Africa-Astral-Foods-warns-of-profit-collapse
(14) Business Day, ‘SA must shut down dumped chicken imports to prevent industry collapse’, 26 January 2017
https://www.businesslive.co.za/bd/opinion/2017-01-26-sa-must-shut-down-dumped-chicken-imports-to-prevent-industry-collapse/
(15) AFP, ‘South Africa and EU spar over chicken meat dumping’’, 1 February 2017
http://punchng.com/south-africa-eu-spar-chicken-meat-dumping/
(16) Business Day, ‘Imports put SAs chicken sector in distress but Europe disagrees’, 25 January 2017
https://www.businesslive.co.za/bd/business-and-economy/2017-01-25-imports-put-sas-chicken-sector-in-distress-but-europe-disagrees/
(17) 702.co.za, ‘Minister Rob Davies in the UK to discuss Brexit and trade with SA’, 25 January 2017
http://www.702.co.za/articles/240372/minister-rob-davies-in-the-uk-to-discuss-brexit-and-trade-with-sa
| Comment and Analysis While the current job losses in the South African poultry sector are alarming they are just the tip of the iceberg. Further losses of jobs and livelihood opportunities along the supply chain are also underway, particularly in the feed supply sector. However, these effects are only likely to be felt once the South African agricultural sector fully recovers from the severe drought which affected production in 2015/16.The application of safeguard duties based on ad valorem tariffs, faces a serious structural problem in the poultry sector. The prices of the poultry parts being exported from the EU are so low that unless ad valorem tariff are exceptionally high, there value is extremely limited. The use of fixed duty safeguard levies however is prohibited under the provisions of bilateral EU trade agreements. This raises serious issues about the utility of ad valorem safeguard duties on poultry imports from the EU under all economic partnership agreements. It remains to be seen whether the European Commission will challenge South Africa’s introduction of safeguard duties on the technical grounds that the SADC EPA safeguard provisions have been superseding by the provisions of the TDCA. Given the obvious difficulties facing the South African poultry sector, this can be seen as constituting a test case as to whether the EC intends to apply EPA provisions ‘responsibly’, or whether the EC intends to seek enforcement to the technical limit of these agreements, in the interests of EU exporters. This needs to be seen in the context where the EC was heavily criticized, during the consultation process which took place around the EC’s 2015 trade policy review, over its failure to enforce the non-tariff provisions of EU trade agreements. A multiplicity of EU agro-food exporters associations argued the failure of the EC to enforce compliance with trade agreement provisions undermined the value of such agreements (see box).
To date, measures taken by the South African government to protect its domestic poultry sector from imports of growing volumes of residual low cost poultry parts have proved largely ineffective, given the EU’s exclusion from, or legally allowed evasion of import control measures introduced by the South African authorities since 2013. Since these measures were initiated in 2013, imports of poultry meat from the EU have increased by over 100,000 tonnes (an almost 80% increase). |
| Key words: Poultry Area for Posting: Poultry sector, SADC EPA |