Price Wars Feared As U.S. Chicken Exports Resume In South Africa

Price Wars Feared As U.S. Chicken Exports Resume In South Africa

South African retail supermarket chain Shoprite said it will sell frozen chicken imported from the U.S. at cost price, triggering fears that smaller companies will be unable to compete and other large retailers will lower their prices too.

Shoprite sells 60 percent of all frozen chicken in South Africa, according to IndependentOnline.

South Africa and the U.S. agreed in November to let the U.S. export 65,000 tons of poultry after breaking deadlocked negotiations arising from the African Growth and Opportunity Act (AGOA).

AGOA allows qualifying sub-Saharan African countries duty-free market access to the U.S. on more than 4,600 products.

South Africa opened a new tariff-free quota for U.S. poultry last week to avoid a suspension of its benefits under the AGOA, South African Trade Minister Rob Davies said, according to a report in Politico.

On Nov. 5, U.S. President Barack Obama warned he would suspend benefits in 60 days on all AGOA-eligible agricultural goods if South Africa didn’t resolve its issues with U.S. meat imports. The two countries announced a deal in June to allow up to 65,000 metric tons of tariff-free, frozen bone-in U.S. poultry into South Africa but South Africa continued to block imports.

South Africa exported $1.75 billion in goods to the U.S. in 2014 under AGOA – around 35 percent of the total $5 billion-or-so worth of goods exported in 2014, according to researcher Andrew Barlow in a guest column in PoliticsWeb.

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Barlow is a researcher for the South Africa-based Helen Suzman Foundation, an organization that promotes liberal constitutional democracy.

Obama said, “I have determined that South Africa is not making continual progress to the elimination of barriers to U.S. trade and investment as required by section 104 of AGOA.”

The ramifications of non-compliance could have derailed many crucial sectors of the South African economy, Barlow said.

Here’s a brief timeline of the U.S.-South Africa-AGOA issues over poultry, meat and pork exports, according to Barlow in PoliticsWeb:

In 2000, the same year that AGOA went into effect, South Africa introduced an extremely stringent anti-dumping duty on U.S. bone-in chicken cuts, rendering U.S. cuts twice as expensive as other foreign exporters, and effectively blocking U.S. chicken exporters for 15 years from the South Africa market by totally precluding any potential profitability.

In 2003, following the detection of bovine spongiform encephalopathy in Washington State, South Africa completely blocked all U.S. beef exports to South Africa for 12 years.

In June 2013, South Africa blocked U.S. pork exports. Late in 2014, South Africa completely banned all U.S. poultry products in response to sporadic outbreaks of avian flu in U.S. flocks.

On Nov. 13, 20154, South Africa and the U.S. signed the Protocol for Poultry Meat and Day-Old Chicks, which lifted the avian flu ban on U.S. poultry and marked the first, and most significant, step toward meeting eligibility for continued preferential access to the U.S. market under AGOA.

From PoliticsWeb by Andrew Barlow.

The South African government felt that anti-dumping measures were necessary to prevent the domestic market from being flooded by what it saw as an unfairly priced product that the local poultry industry could not compete with.

U.S. exporters saw the measures as deliberately and unjustly discriminatory. The U.S. government became increasingly frustrated at South Africa’s reluctance to remove them, given that it was benefiting from AGOA’s preferential access to the U.S. market.

Bone-in chicken cuts … are almost considered by the U.S. and E.U. poultry industry as waste products. Moreover, poultry farmers in both the U.S. and E.U. are heavily subsidized. These two factors have meant that U.S. bone-in chicken cuts can be exported at very low prices. In fact, a 2014 industry report to Congress remarked that U.S. chicken exporters are able to give South African consumers “an option to purchase U.S. poultry that is one-third the cost of South African chicken”.

On the other hand, consumer preferences for chicken in South Africa are radically different. One of the most popular dishes in South African townships is known as Walkie-Talkies – spiced chicken heads and feet grilled over hot coals.

Differing cultural attitudes toward chicken and domestic economic realities mean that the local poultry industry is not given the same ability to charge a premium on any one cut of the chicken.

This is why the U.S. bone-in cuts have been considered anti-competitive. U.S. exporters are privileged by consumer preferences in their own market and the financial security afforded by government subsidies, and our local industry is subsequently unable to compete.

AGOA is a non-reciprocal trade benefit scheme. However, to view it as an act of pure altruism on the part of the U.S. is simply incorrect. Every trade agreement involves exchange. Through AGOA and its trade benefits, the U.S. is able to effectively encourage soft-power objectives such as safeguarding the rule of law, combating corruption and promoting peace and security in the region. This is in everyone’s best interests.

The real exchange, however, lies in securing trade barrier-free access to sub-Saharan Africa markets for U.S. exporters, and in ensuring that those markets are favorable to U.S. investors.

South Africa tested U.S. patience and resolve over the dispute surrounding market access for U.S. bone-in chicken portions to the point that Obama issued an ultimatum. (The South African) government’s actions were deeply misguided. We treated the U.S. in a discriminatory and mercantilist manner whilst expecting to retain unbridled tariff-free access to their market.

Read more at PoliticsWeb.