When former finance minister Tito Mboweni asked last week “why we cannot even produce a waslap in SA”, lamenting the proliferation of Pakistani-made face towels in his neighbourhood, it was a familiar yet revealing cry. He assumed he did not find an SA-made waslap in store because we don’t make them here. Yet we do make face towels — in Hammarsdale for instance, not far from where more than 1,000 workers were retrenched from poultry operations in 2017.
My guess is that the towels produced there command a significantly higher price than those Mboweni found in his local store. And the mixed frozen chicken portions from Hammarsdale probably cost more in the nearby township of Mpumalanga than those found in the frozen boxes that arrive via SA’s harbours.
The recent announcement by the International Trade Administration Commission (Itac) of provisional anti-dumping duties on frozen bone-in chicken from Brazil, Denmark, Ireland, Poland and Spain reveals the tough balance that needs to be struck. Higher prices hit poorer consumers disproportionately harder than more affluent households, because a larger proportion of their lower incomes is spent on immediate consumption, rather than, say, savings or investment. Yet lower prices are not always a signal of fair competition.
Many who argue against antidumping measures suggest they are invasive measures that violate “free markets” and restrict international competition. Yet the converse is true, even by their own theoretical foundations.
Orthodox economic theory suggests that in conditions of “perfect competition”, producers face a price equal to the marginal cost of production. Notwithstanding the unrealistic assumptions that underpin this and the role of markups in price formation, there is an implicit expectation that prices be aligned to some degree to the cost of producing a particular product or service.
Competition, within and beyond borders, is seldom that neat or that “perfect”. As Polish economist Michal Kalecki has suggested, under more realistic conditions of “imperfect competition”, prices are not determined solely by costs of production but also by shifts in demand. Put differently, Irish, Polish and Brazilian poultry does not fetch a lower price because of significantly lower cost structures, scale or greater efficiencies in their home markets, but rather due to the differences in the composition of demand in those markets compared with SA. These differences are primarily in consumer preferences and tastes.
We are told that drivers of poultry demand here at home are low-cost bone-in or mixed frozen portions and even backs, bones and skins, while demand in EU and other markets is primarily for white meat (fillets, breasts), with the bone-in portions seen as a “byproduct”.
Without consumer demand for this dark meat, export markets in developing nations serve as a destination for these products, at prices far lower than the cost of domestic production. This deals a bad hand to the local industry, which must suppress its prices to compete or risk large-scale closures.
Without instruments such as antidumping duties (where such evidence of dumping has been proved), we may end up having to cease to produce anything subject to competition from foreign producers, especially where substitutable products face different demand patterns in their home markets.
This is not to suggest domestic pricing or cost structures do not have their own peculiar challenges. Nor do I hold a brief for the profitability of local poultry producers. Rather, the concern is that such trade support be accompanied by firm commitments to price moderation, transformation, expansions in employment, and technological and structural change.
While trade may confront the transnational implications of production and the terms of exchange in the poultry and other sectors, the task of policy is to also consider the distributional and technical issues that are critical to productivity gains and competitiveness. Without this we may find that more of the stuffed chicken ala Duke of Magoebaskloof may come in frozen after months at sea, and the face cloths from Pakistan may be a compelling proposition for margin-seeking traders. At great cost.
• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.
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