Chicken Prices Already on the Rise

Trade and Industry Minister Rob Davies played down the impact on consumers of the new tariffs on imported chicken when he recently announced the measures. However, ZA Confidential has discovered that there has already been shockingly high inflation in chicken prices in the local market, running at way above the general annual inflation rate of just over 6%. One supplier of food products to restaurants announced a 5% jump in June, followed by a further 5% at the end of September, and a massive further 12% this week. Meanwhile, the prices of other food items – from nuts, to cherries to cheese to chocolate to chips – have also been spiralling upwards. What do our experts make of it all?

Duane Newman from Cova Advisory:
We have a family-owned coffee ship in Kyalami, which my wife runs, and I can confirm that we are being faced with really high price increases – and chicken is a big problem, with price rises this year of several times the general inflation rate. I fear there may be more to come, with our suppliers warning that some chicken importers have closed their doors due to the new tariffs. That will give local chicken producers yet another opening to further raise their prices. It is difficult to pass on these rises to our customers, who are often not aware of the big jump in food inflation. It gets worrying when you combine this with the electricity hikes, increased transport costs once the e-Tolls kick in, and an expectation from the staff for wage increases to match those recently awarded across the economy. And if inflationary pressure is happening at the wholesale end of the food market, it must also come through with retailers facing higher costs, and needing to pass these on to their customers.

Food and Wine Writer and TV Chef Michael Olivier:
I think that suppliers need to justify this type of iniquitous price rise of basic foods. Chicken used to be one of the cheapest forms of protein and it should be kept so. I also feel very strongly about imports of chicken from places like Brazil getting in as processed food simply by sprinkling some salt and black pepper on top of it! I don’t mind cherries and chocolate prices going up, but I feel for the poor – with basic protein prices skyrocketing. Add the electricity prices going up, fuel etc and it impacts hugely on the poor.

Independent Economist Ian Cruikshanks:
Consumers’ basic expenditure potential is being squeezed by spiralling food costs, which is likely to dent alternative discretionary spending. As consumer expenditure contributes over 60 percent of ZA’s GDP, higher food prices will definitely negatively impact the retail sector – casting doubt over the stocks maintaining their high share prices. Monetary policy will be forced to remain unchanged despite higher inflation – as consumers are certainly at the limit of affordability. The 2 percent estimate for GDP growth this year could be in danger of downside risk.

Dawie Roodt from the Efficient Group:
Part of the reason why the minister announced the recent increases in chicken duties is because he mostly concentrates on revenue side of the income statements of chicken producers in the country. He saw, and the local pressure group made very sure that it was very well emphasised, that their revenue was “not enough” and that something needs to be done to make sure that the revenue side of the income statements of the local chicken guys were boosted; import duties were the obvious and easy choice. That is wrong. Instead the minister should have looked at the expenditure side of their income statements to see if it was possible to make life a little easier for them. And there are plenty opportunities: for example, he would have seen that the cost of labour doesn’t match labour’s productivity, that skills are lacking, that electricity prices just keep on going up, that tax compliance is very high, that red tapes strangles these business, that security is expensive and plenty of other very expensive expenditure items. Instead of “increasing” the revenue of chicken producers we can reduce the cost of chicken production by liberalising labour legislation, by improving education, by privatising Eskom, by overall-ing the tax system, by cutting red tape and by doing many other things that make it easier and more viable to do business in SA. Chicken producers will make more money and we will now have to pay more for chickens; but that is the more difficult option, not an option our politicians are usually keen to pursue.

Mike Schussler from economists.co.za:
Chicken, along with some fish, is a cheap source of protein – and South African consumers spend a lot of money on chicken. It is, by far, the protein source with the highest weight in the CPI – at 1,7 of the total in urban areas. With the rand’s decline, I had thought that chicken farmers would get a break – but now the tariffs have been introduced, it is clear that prices are now on the way up. It may save the poultry industry, but it may just be another nail in the consumer’s coffin. As interest rates are likely to remain low for now, the bigger effect would just be on the consumer’s pocket, and particularly that of poorer the consumer.

Chris Hart from Investment Solutions:
While it is appreciated that there are genuine and complex issues around chicken imports, the recent measures to protect the local industry are likely to have a negative impact for consumers and for inflation. Protectionism helps one set of stakeholder but has a negative impact on others. The imposition of tariffs on imported chicken did not come with any local efficiency caveats or any time limits. South Africa has suffered before by supporting local inefficiency through high tariff barriers, which stunted growth and reduced the incentives to greater efficiency and competitiveness. Ultimately, this will prove to be unsustainable and the industry will be left worse off that if the tariffs had not been raised. Sustainability over the medium to longer term will require that South African industry (in this case poultry) be structured in a way that is globally competitive. Protectionism leads to rent-seeking behaviour, where stakeholders seek out soft options or special favours for themselves but to the cost of the more productive. South Africa will be left poorer if rent-seeking behaviour is encouraged at the expense of industries that genuinely add value.

Conclusion:
Chicken prices have been going up, along with other food prices, and there are more rises in the pipeline. Sadly, it is the consumer who is taking the roasting.

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ZA Confidential is e-mailed to subscribers. For details on subscription rates, please contact zaconfidential@gmail.com


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