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Economics HL
Economics HL
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COMMENTARY

(The Global Economy) Govt suspends chicken import tariffs to ‘help cash - strapped consumers’

(The Global Economy) Govt suspends chicken import tariffs to ‘help cash - strapped consumers’ Reading Time
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Figure 9

The South African Meat Imports and Exporters Association (Amie) has welcomed national government’s decision to suspend anti-dumping duties on chicken imported from Brazil, Spain, Poland, Ireland and Denmark for 12 months.

 

Trade, Industry and Competition Minister Ebrahim Patel indicated in the Government Gazette on August 1 that, in making the decision, government considered the current rapid rise in food prices in the Southern African Customs Union (SACU) market and globally, and the significant impact this has on the poor.

 

Patel said the imposition of anti-dumping duties may impact on the price of chicken as one of the more affordable protein sources. The Minister therefore decided to suspend the imposition of anti-dumping duties for 12 months.

 

Amie describes the decision as a major win for millions of cash-strapped consumers. “This is an exceptional outcome for South African consumers, because they are under such significant financial pressure. Chicken is the most affordable [protein source] and therefore vital for consumers, especially those living below the poverty line.

 

“Government’s decision shows they are ready to take bold actions to help mitigate the impact of rampant inflation, which is encouraging,” says Amie CEO Paul Matthew.

 

Amie in April asked government to consider a moratorium on tariffs on imported chicken to help curb inflation. It also asked for existing tariffs to be reconsidered, and for all chicken cuts to be exempted from value-added tax.

 

Governments globally have been slashing import tariffs as a way to help their citizens survive, including Mexico, the Philippines and South Korea.

 

Amie explains that the liberalisation of trade policies can help consumers. The opposite is true of localisation and protectionist policies because they restrict competition, which lead to an increase the price of local goods.

 

“We do not know the detail of the suspended tariffs yet, or how they were determined, and will consider these in due course,” Matthew concludes.

 

In turn, broiler organisation the South African Poultry Association says the nonrenewal of trade tariffs threatens jobs and industry growth.

 

South Africa had reportedly been flooded with dumped chicken imports for many years up to 2018 when import tariffs started being introduced.

 

The International Trade Administration Commission found after conducting an investigation that Brazil, Spain, Poland, Ireland and Denmark had been dumping chicken in the SACU area at below the cost of production, causing “material injury” to local chicken producers.

COMMENTARY

This article discusses the suspension of anti-dumping duties on chicken imported from countries such as Brazil, Spain, and Ireland for 12 months. Anti-dumping duties are a form of protectionism that the government imposes on imported goods that are sold at a lower price compared to their value or below their costs of production. Dumping of chicken harms the domestic chicken industry which is producing similar products. This suspension is being done because of the rapid rise in food prices which negatively impacts the economic well-being of consumers because well-being is influenced by the inability to afford food. To overcome this problem, tariffs on imported chicken will be cut temporarily.

Figure 10 - Shows The Effect Of The Suspension Of The Chicken Tariff

Prior to the suspension of the tariff, at Pw + tariff 0-Q3 of chicken was consumed domestically and Q3-Q4 was imported. It is likely that prices were rising higher than Pw + tariff due to the cost-push inflation, which would further impact the cash-strapped households. However, with the removal of the tariff, the supply of imported chicken should increase, reflected by Sw, which results in increased imports of chicken from Q1-Q2 at lower price Pw because domestic producers are disincentivized to supply the market with chicken at a lower price. Since the tariff has been removed, this allows more households to consume the chicken at this lower price Pw as shown by the increase in consumer surplus, shown by areas ABDEFG. The tax revenue, represented by the green rectangle, and deadweight loss, the blue triangles, from the tariff are now absorbed in the consumer surplus.

 

An advantage of the suspension would be that there would be higher availability and variety of chicken because foreign firms have the opportunity to provide their products to South Africa at a lower price and potentially different cuts of chicken. Anti-dumping duties make products less competitive with locally produced chicken. By suspending these duties, different types of poultry may be imported into the country that might not otherwise be available or affordable for cash-strapped consumers, which will aid their economic well-being.

 

However, when the tariff is removed, there is increased competition which could be harmful to the local producers because they are no longer protected by the tariff and are now exposed to potentially harmful foreign competition which they are not able to compete with, which is represented by producersurplus decreasing from CBEFG to C. This might cause South African firms to leave the market, causing structural unemployment because cheaper imports may lead to reduced demand for locally produced products, shown by 0Q3 to 0Q1. POn the positive side, increased competition and variety may increase the standards in the local market, as producers aim to offer high-quality and cheaper chicken to consumers to remain competitive.

 

Anti-dumping duties intend to protect the local chicken industry even at the expense of higher prices for consumers. However, in South Africa, their focus is to decrease chicken prices and not to protect their domestic industry. The inflow of cheaper imported chicken might make it difficult for local producers to compete and maintain their market share, leading to decreased production and employment. The decrease in production from Q3 to Q1 requires less labour to produce poultry products. Another disadvantage could be that South Africa might have decreased food security because the country is more reliant on imports for its poultry supply. This could leave it vulnerable to supply chain disruptions or price fluctuations in the global market. Moreover, food security in South Africa may be jeopradise in the long run, as the aforementioned factors may cause the chicken industry in the country to decline whilst relying on imported chicken. This dependence on imported chicken for South Africa`s ``most affordable protein source`` makes it vulnerable to supply shocks and reliant on others

 

In addition, the government would suffer from the removal of the tariff because they lose tax revenue. This loss is represented by the green rectangle in Figure 10, which could decrease its budget and ability to fund programs and perhaps be used to make domestic chicken farmers more competitive.

 

Overall, the suspension of the anti-dumping duties in South Africa has several benefits to the cash-strapped consumers by increasing variety of chicken products, and lower prices, all of which improve their economic well-being. However, the increased unemployment and loss in government revenue may counteract the benefits associated with the suspension of anti- dumping duties, but these disadvantages mainly impact domestic firms and the government. Chicken farmers and their workers are unlikely to find jobs in other fields and allowing these imports may harm the future of domestic chicken farming and food security, which impacts the economic well-being of the country and the consumers.