Evaluating the effect of proposed tariff protection for the South African broiler industry

Abstract

Following the application in March 2013 by the South African Poultry Association for increased tariffs to insure the sustainability of South African broiler production, this paper critically evaluates the effect of increased tariffs on broiler producers and chicken meat consumers in South Africa. Arguing beyond the level of tariffs, it highlights some of the deeper underlying drivers of competitiveness in the industry. From a self-sufficiency perspective, the need to support broiler producers is clear, yet the cost to consumers as well as the segment of the population that would have to bear the cost of higher tariffs is questioned. The proposed tariffs, as well as two other possible scenarios are simulated within a partial equilibrium framework in order to determine the effect on the fundamentals of the South African broiler industry. Simulations highlight the difference in outcomes when imports originating from the EU are also included in the general tariff increase. Under the basic scenario that simulates the impact of the current tariff application by SAPA, consumer prices for whole frozen chicken will increase by 2.6% while producers will enjoy an increase in producer prices of approximately 5%. On average, local production will increase by 16 000 tons per annum in the long run. Although 5% is a significant margin on the bottom line for broiler producers and a 2% increase in the average consumer price seems to be digestible, one has to take a step back and ask the question why our chicken producers cannot compete against imported chicken.