Poultry imports as an alternative paradigm to South Africa’s economic transformation: A classic case of throwing away the baby with the bathwater?

Adezwe Camngca’s article titled; “An honest view of the South African poultry industry: Inviting the hen to dinner”[1] published on the 20th January on news24.com articulated some uncomfortable perspectives, which after much thought, deserve attention and debate. Adezwe’s line of thinking evokes a fundamental question: Can poultry imports be used to strategically advance South Africa’s transformation agenda, even if such imports occur at the expense of the domestic industry? This is a very important question, especially given the 65 000 tonne South Africa-US Africa Growth Opportunity Act (AGOA) rebate, which was used to advance transformation through provisions that allow for preferential quota allocations to the Historically Disadvantaged Individuals (HDIs). Given the crisis in the poultry sector, would it be prudent to actively support this approach – on the basis that the industry is not transformed – even as poultry imports reach a level that is now detrimental to the survival of the sector? Given the importance of the poultry sector to the economy, would this approach not become self-defeating in the long run, if actively supported as a tool to achieve transformation? There are four key points in the article that warrant debate.

First, Adezwe argued that the poultry industry (and farming as a whole) still remains the least transformed sector in the South African economy, and furthers argued that an external competitive intervention/stimulus in the form of imports will ensure that the industry remains competitive and honest.

I agree with the first part relating to the lack of sufficient transformation of the industry. However, the lack of transformation is not only a poultry industry problem, but rather, a sector-wide (and even economy-wide) problem. I think it’s a bit opportunistic and unfair to single out the poultry sector, and then peddle the transformation argument as a reason why it should be left exposed to unfair international competition. Also, the poultry industry is also not the only sector that has an oligopoly structure where only a few big players dominate the industry. It’s a systemic issue that even exists in other sectors of the economy such as mining and manufacturing.

Second, Adezwe argued that the ‘external intervention’ in the form of imports will provide the much-needed remedial relief which will allow black (poultry) importers who can bypass what he termed “economic racism” and the perception that “black products” area substandard. He then justified his points further that the perception that “black products” would not of good quality would not apply in the poultry import scenario because poultry imports from the United States (US), should “surely” be of a better quality because it is produced by white farmers.

My considered opinion is that the evolution of the structure of the poultry sector aligns with the global trend of consolidation of large scale operations. In other words, the sector is typically a “volume-driven” business, where margins are relatively thin, and where gains are made on the basis of economies of scale and efficiency. This scenario is, by and large, unfavourable to small players – who might not be able to compete due to small volumes. Yet being small does not imply in any way that the output produced is sub-standard. The statements Adezwe makes here might not be supported by facts.

I don’t quite know what the term “economic racism” means, but I assume it implies the exclusion of Historically Disadvantaged individuals (HDIs) who are finding it difficult to access opportunities to participate in the value chain. The AGOA temporary rebate did offer preferential access to HDIs for import permits under the 65 000 tonne quota for bone-in portion imports from the United States. Now, import quotas are admittedly, a “low-hanging” fruit” that can potentially overcome the barriers to entry in the industry. But it would be naïve to suggest this to be the only tool to ensure the participation of HDIs in the economy, especially if it is at the expense of the existence of an entire sector. The argument that HDIs can now use imports to fight domestic “monopoly” is self-defeating because you do not advance economic integration and development by destroying the country’s local productive capacity.

Moreover, the assumption that poultry imports from the United States are of a relatively better quality will be disputed by the South Africa Poultry Association (SAPA), who have gone on record to argue that South African standards are much higher than those applied to US poultry. More importantly, however, quality and health issues related to poultry meat consumed in South Africa should not be a matter of debate. Standards applied to food should not be compromised on any basis or reason, and food standards should apply to all producers regardless of race.

Third, Adezwe argued that poultry imports are nothing new in the sector in fact more than 40% of poultry products ‘masquerades’ as being locally produced (when in fact it is not).

I don’t quite understand this statement – whether he is saying 40% of all imports are actually being labelled as domestically produced chicken, OR the proportion of imports as a share of domestic production is 40%. If it is the former, then that’s fraud, and perhaps he can bring further evidence to back up his claim. If it is the latter, then one can easily verify this using available data.

Depending on what data source you use, the share of imports as a proportion of domestic production has fluctuated between 27% and 33% between 2011 and 2015. So, on average, chicken imports are 29% of domestic production. If I take Adezwe’s statement to mean that the proportion of chicken imports as a share of domestic production is 40%, then he has over-estimated that figure by a margin of over 10%. I trust SARS is keeping an accurate record of imports, and production data is also being recorded diligently, despite the labelling issues that Adezwe has seen at the retail end of the value chain.

Fourth, Adezwe argued that the perception that imports from the United States do not meet the poultry sectors hygiene and health standards is a gross embellishment that is unsubstantiated. He further argues that the refusal of international imports (especially from the US) is meant to maintain the ‘Monopoly’ that certain companies enjoy in South Africa, which he believes to have done very little in terms of SME development or supporting/preferring BEE suppliers.

I have partly addressed this question when I answered the second point. Concerns over health and food safety are serious and I imagine Adezwe has not had a discussion with Veterinary experts from the Department of Agriculture, Forestry and Fisheries (DAFF) to get a deeper appreciation of how the US negotiations proceeded, and the challenges that arose when Health protocols were being discussed. Adezwe clearly takes this very serious issue for granted, and this point needs to be treated with the contempt it deserves. You cannot peddle the transformation narrative at the expense of human health risks – that argument is false and misplaced.

Adezwe then argued that, the debates against imports are often articulated within the context of food security and (un)employment, and not from the perspective of how imports may actually indirectly contribute to the shrinking of all educational programmes relating to Agriculture and the Animal sciences.

This point does not only negate the other points Adezwe made about letting imports into the country as a counter-narrative to “monopoly” and white dominated agriculture, but it contradicts the very essence of the leftist perspective of transformation he has advanced in his article. As I mentioned before above, you do not address the question of inclusivity and economic integration by destroying the productive capacity of the economy. There are models that can be used to explore how to integrate more HDIs into the economy, without necessarily damaging prospects of growing the poultry production base, or sacrificing the thousands of jobs in the sector.

In his conclusion, Adezwe argued that the country’s politicians and the government departments that have an oversight over the industry have failed the country and industry “in many ways”. He further pointed out that a trite principle of [the] political engagement[s] that [define South Africa’s] foreign trade policy must consist of self-interest strategies chosen by the state to safeguard its national interests and those of its citizenry. He then makes the recommendation that South Africa, in general and the Departments Agriculture, Forestry & Fisheries [DAFF]and Trade and Industry [dti] should always strive to only engage in agreements that have a tripartite-nature of being equitable, fair and balanced.

I have my issues with DAFF and the dti, and maybe they haven’t performed to the expectations of the broader public. I do however want to emphasize that, despite the challenges that are seen in the poultry sector, I do not doubt the intention and goodwill of the government to safeguard the interests of the country. I think the government sometimes does not get the credit due on some of the more progressive trade policy milestones that it has managed to attain. It is a difficult task to balance the multiple interests of a society, and the AGOA negotiations as a special case in point, were admittedly challenging.

Overall, I think the perspective taken by Adezwe and like-minded South Africans are coming from a place of deep frustration and anger over the painfully slow progress of transformation in the broader economy. While feelings of anger and frustration are well-placed, care should be taken not to allow these negative emotions to drive and shape the narrative of economic transformation. The problem that South Africa has is too significant and too important to be driven purely by emotion, and overcoming them will require a level of calmness and sober-mindedness that can allow for progressive and holistic approaches.

[1]http://www.news24.com/MyNews24/an-honest-view-of-the-south-african-poultry-industry-inviting-the-hen-to-dinner-20170120

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