Photographer: DHIRAJ SINGH/BLOOMBERG

Chicken Fight Rocks South Africa-Europe Trade Relations

  • South African farmers accuse Europe of dumping dark meat
  • Dispute is symptomatic of rising anti-trade policies globally

Chinese steel and Mexican-made cars became political dynamite last year as politicians including U.S. President Donald Trump championed anti-free trade rhetoric. Now chickens are at the center of a bitter fight between South Africa and Europe.

South African farmers and labor unions say the European Union is selling chicken legs, thighs and wings at below cost, threatening local companies and jobs. EU producers make enough money marketing breasts in their home market that dark meat is sold as a waste product, they say. Europe says its farmers are simply more competitive than their peers in South Africa.

“We definitely have distress,” South African Trade Minister Rob Davies said in an interview Jan. 24. “We will not have an industry to raise the competitiveness of” if imports continue to flood the market.

The argument has left South Africa with a tough choice: either upset relations with its biggest trading partner or watch the demise of its chicken industry, which employs 60,000 people and is source of 65 percent of all meat consumed in the country. The row marks a rocky start to the European Partnership Agreement, a free trade deal signed last year by the EU and southern African countries including South Africa.

“We’re moving into a more protectionist sort of world,” said Mike Schussler, chief economist at Johannesburg-based research company Economists.co.za. “South Africa has one of the most open agricultural markets in the world and seems to be paying the price.”

Europe’s share of South Africa’s bone-in chicken imports has grown to 80 percent from 0.5 percent in 2012 when tariffs were removed, according to data compiled by the South African Poultry Association. In contrast, South Africa’s biggest chicken producers, including RCL Foods Ltd., are cutting 5,000 jobs and saying the industry is under threat.

Industry Threat

“If things stay the same there will be no chicken industry in a year’s time,” Scott Pitman, managing director of RCL’s consumer division, said by phone.

Shares of RCL, which produces several food brands other than chicken, are 35 percent below a 20-year high of 19.45 rand in 2014.

“The market is looking forward and anticipating lower feed costs” as South Africa’s two-year drought eases, said Victor Dima, a Dubai-based analyst at Arqaam Capital. Chickens in South Africa are fed corn among other feed-stuffs.

South Africa is the world’s fifth-biggest consumer of chicken per capita behind the U.S., Australia, Brazil and Peru, according to the International Poultry Council.

Dumping Accusations

The EU says its chicken exports comply with trade laws and there’s no reason for South Africa to impose duties against them. The accusation of dumping is a sensitive one for the EU, given that the bloc last year imposed tariffs as high as 73.7 percent on Chinese steel that it says is dumped in Europe.

“The real problems of the South African poultry industry are not so much caused by the imports from the EU but that it is suffering from structural problems affecting its competitiveness,” Cecilia Malmstrom, the EU’s trade commissioner, said in a Jan. 11 letter to South African Minister of Trade Rob Davies.

Davies agrees that producers must find ways of raising efficiency. “But they’re 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,” he said.

Frozen leg quarters imported to South Africa from Europe cost 17.52 rand a kilogram ($2.8 per pound) before duties and storage this month, about 30 percent cheaper than local producers, according to Astral Foods Ltd.

That rankles local producers who say their production costs for whole birds are lower than European farmers’. Researchers at Pretoria-based Bureau for Food and Agricultural Policy and the Netherlands’ Wageningen University found that South Africa’s whole-chicken costs were about 20 percent lower than in Europe in 2013, the latest available data.

Fat Chickens

European farmers reject accusations of dumping. South African producers inject chickens with brine, or salt water, increasing their weight and reducing quality, Cees Vermeeren, secretary-general of AVEC, a trade body for European chicken farmers, said by e-mail.

Still, South Africa’s chicken producers are asking the government to increase protection from European imports.

South Africa’s government imposed anti-dumping tariffs ranging from 4 percent to 73 percent on some chicken from Germany, the Netherlands and the U.K. in 2015. In December it added a temporary 13.9 percent “safeguard duty” while it investigates allegations of dumping.

“Chicken farming is in crisis and on the cusp of collapse,” Kevin Lovell, chief executive officer of SAPA, said by phone. “The trigger will be when the banks stop funding. That moment is getting close. Then the industry will shrink permanently.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE