EU rebuffs South African claim of chicken imports being cause of industry distress

The European Union (EU) is strongly contesting arguments that its chicken exports to South Africa are the main cause of the current distress in the industry, asserting that “structural” problems in the South African industry are the main reason for its lack of competitiveness.

Ambassador Marcus Cornaro also dismisses suggestions that European exporters are dumping cheap, low-quality bone-in chicken on to the South African market, noting that the prices of frozen chicken pieces from Spain, Belgium and Ireland are not the cheapest on the market. In addition, imports from seven other EU poultry exporting countries – Germany, the Netherlands, France, the UK, Poland, Hungary and Denmark – are currently prohibited, owing to a blanket Avian flu ban imposed since late 2016.

The EU will, therefore, seek to overturn a provisional safeguard duty of 13.9% on frozen bone-in-chicken imposed by the International Trade Administration Commission of South Africa (Itac) on December 15.

It is also questioning the legality of the intervention, which it says could amount to an “accumulation of punitive measures, which is against World Trade Organisation rules”. This, in light of anti-dumping duties, which range from 22% to 75%, already in place on imports from the Netherlands, the UK and Germany, together with the universal, rather than regional, ban on imports from the seven countries where Avian flu has been detected.

“The aggregate impact is that exports of chicken from the EU to South Africa is down by one-third,” Cornaro asserts.

South African Revenue Service figures put broiler imports for 2015 at 457 374 t, or around 21% of local consumption. Almost all of that meat was frozen, with frozen broiler from the EU calculated to be 194 685 t, or 42.6% of total frozen chicken imported and 7.6% of total poultry consumption.

The EU acknowledges that its poultry exports to South Africa have been rising since 2012, but dismisses any suggestion of dumping or allegations that there has been a surge that is causing harm to the domestic industry. Itac has indicated that the provisional safeguard will remain until July 3, while it continues with a safeguard investigation under article 34 of the recently ratified Economic Partnership Agreement (EPA) between the EU and six Southern African countries, including South Africa. The EPA, which took more than ten years to negotiate, was signed in Kasane, Botswana, in June last year and ratified by all participants in November. The actions taken against EU poultry imports were taken only a week after the EPA came into force.

The South African poultry industry, together with the leading trade union in the sector, will march on the EU delegation’s offices in Pretoria on February 1, to protest what they described as “EU dumping”.

The Food and Allied Workers Union (Fawu) has warned that the dumping is putting at risk an industry with 110 000 direct and indirect workers, and a further 20 000 jobs in the related grains industry. Leading domestic poultry producers have also warned that 3 500 jobs are more immediately imperiled, unless interventions are made to further protect the industry.

The call for support has gained political traction, with the governing African National Congress suggesting on January 30 that the State should consider “purchasing productive poultry farms currently being sold off in a bid to save jobs and increase food security and production”. In addition, the Economic Freedom Fighters has written to Trade and Industry Minister Dr Rob Davies calling for the imposition of a 50% tariff on all chicken imports, cautioning that, without decisive measures‚ “we will witness the demise of the poultry industry”.

In January, government established a ‘Poultry Sector Task Team’ – comprising representatives from the departments of trade and industry, economic development and agriculture, forestry and fishing, as well as Fawu, industry bodies and the Industrial Development Corporation – to deal with the crisis.

Under the task team five work streams have been established under the themes of trade measures, health and quality issues, competitiveness, industry growth and transformation and industrial financing, incentives and demand side interventions to assess possible short- and longer-term interventions.

Cornaro welcomes the fact that trade measures are but one intervention proposed, arguing that the EU’s analysis of the South Africa industry suggests that protective measures alone will not guarantee industry sustainability over the longer terms. In fact, he argues that many of the problems are either structural, or even “self inflicted”.

He is particularly critical of the level of concentration in the industry, which he believes has resulted in an industry that has been slow to respond to threats and to take up trade opportunities. He highlights the fact that the EU has yet to receive an application from South African for a license to export chicken into the territory, despite the country having duty-free access under the EPA.

In addition, the decision to invest in brining machines at a time when other countries, including all members of the EU, were stipulating that chickens be sold for their meat content alone is describes as creating a “self-inflicted burden” by deviating from consumer demands.

Cornaro says he will happily accept the memorandum from the protestors, but insists that the EU is more than willing to enter into a dialogue with the industry and the unions over what he describes as the “distorted narrative” that EU imports are to blame for current industry woes.

He argues that EU imports comprise less than 10% of total South Africa consumption, despite its share being above 14% for bone-in chicken pieces. He notes too that imports from Brazil are higher and that any intervention that further raises the cost of EU imports will merely be absorbed by other imports, unless the structural problems of the domestic industry are addressed.

“It is a distortion of the local discussion to think that it’s the EU trade policy that is the origin and main source of the current woes of the South African chicken industry,” the ambassador argues, adding that seeking a “scapegoat” in the EU will delay the processes of dealing with the structural challenges of the industry.

“Indeed, it would be a pity that, out of that wrong reflex [of blaming the EU for the problems in the domestic industry], that our entire very strong, very healthy and very mature trade relationship . . . would give in to the populist notion of yet another unfair trade relationship.”

South African exports to the EU stood at R214.4-billion in 2015, against imports of R320-billion, with agricultural exports of R29-billion against imports of R22.7-billion.

Given these deep trade ties, the ambassador expresses confidence in both the dispute resolution processes that exist under EPA, as well as with the capacity within the South African government and Itac to deal with the impasse.

“Essentially we have a technical process under way with Itac and other departments,” Cornaro says, adding that it does not plan to “make a big fuss” about the poultry matter outside of these processes. “We want to enter into discussions with our South African counterparts to see how to remedy this situation.”