South African farmers play chicken with Trump tariffs

Herman Pretorius is just the kind of
white South African farmer U.S. President Donald Trump expressed concern
for when he barged into the country’s delicate land reform debate by
ordering an investigation into the “large-scale
killing of farmers”.

 

But for the greying, bespectacled
58-year-old, wading knee-deep through some 35,000 chickens at his
isolated homestead in South Africa’s North West province, it’s the
United States and its cheap poultry exports that are a threat.

 

“We cannot compare our chickens with
theirs. The price difference will kill us,” said Pretorius, speaking
with a gravelly voice in his native Afrikaans.

 

For years, the two countries have fought
over poultry: Washington has kept South African poultry out on health
and sanitation grounds while Pretoria accuses U.S. farmers of dumping
chicken at below-cost prices and has imposed
tariffs.

 

But in 2015, South Africa’s powerful
poultry industry agreed to exclude 65,000 tonnes of U.S. chicken from
the anti-dumping tariff – in return for the renewal of broader duty-free
U.S. trade access that benefited other South African
industries.

 

Now, as a consequence of his “America
First” trade strategy, Trump’s decision to impose tariffs on steel and
aluminium has reignited the poultry clash, threatening nearly $2 billion
of South African exports to the United States
under Washington’s flagship African trade legislation (AGOA).

 

South African poultry farmers say because
U.S. aluminium tariffs apply to South Africa – even though aluminium
should be exempt under the AGOA agreement – the 2015 chicken deal is
void and it’s time to slap tariffs on U.S. poultry
again.

 

After months of threats, the South
African Poultry Association (SAPA) pulled the trigger last week and
filed a lawsuit against its government, calling for the U.S. poultry
tariff exclusion quota to be suspended.

 

In its quest to rebalance trade
relationships, Trump’s administration is giving no quarter as it targets
friend and foe alike, from the European Union to China. Coming on the
heels of a row with Rwanda, the dispute with South
Africa highlights how even the smallest trading partners are not being
spared.

 

“We’re not the cause of anybody’s
problems, and yet we’ve been affected,” South African Trade Minister Rob
Davies told Reuters in July. “We’ve become collateral damage in a trade
war that is not of our making.”

 

 

When Pretorius set up his first chicken coops 27 years ago, he said competition from foreign imports wasn’t an issue.

 

Now, he runs 14 industrial chicken houses
that turn out more than half a million birds every few weeks. But in
recent years he said his business has stagnated – and he blames cheap
poultry imports for driving down prices.

 

“The damage got to a point where I wanted
to expand my business … wanted to create jobs for our people. But the
imports from overseas hurt me badly,” Pretorius said. “I want the South
African government to increase the import
tariffs.”

 

In the 20 years from 1995 to 2015, South
Africa’s annual poultry consumption nearly tripled to more than 2
million tonnes. But local production has expanded at a slower rate than
imports, which account for a quarter of consumption.

 

To protect local farmers, the poultry
industry lobbied for protectionist measures and in 2000 the government
imposed an anti-dumping tariff on U.S. “bone-in” poultry. The duty is
currently fixed at 9.40 rand ($0.64) per kg.

 

“That just levels the playing field for our own producers versus their dumped product,” said SAPA’s Marthinus Stander.

 

South Africa argues that the U.S.
industry is tailored to Americans’ preference for white, de-boned breast
meat. Since U.S. producers can recover their costs with the sale of
breast meat, SAPA says the thighs and drumsticks favoured
by South Africans can be exported at below cost.

 

U.S. producers say the South African tariff is illegal.

 

“The anti-dumping duties imposed on U.S.
poultry were based on a flawed legal theory … that has twice been held
by WTO (World Trade Organization) panels to be inconsistent with
international rules,” said James Sumner, president
of the USA Poultry & Egg Export Council (USAPEEC).

 

In 2015, U.S. authorities approached the
South Africa and, using the threat of a withdrawal of South Africa’s
AGOA benefits, pushed for a quota exempt from the tariff.

 

AGOA (African Growth and Opportunity Act)
grants qualifying countries duty-free access to U.S. markets for
thousands of goods and South Africa is among the main beneficiaries.

 

South Africa’s poultry industry agreed to
the deal despite the fact its exports remain blocked from entering the
U.S. market. It calculates the quota has cost about 6,500 jobs.

 

“It was for the good of the other
industries. So we kind of put on a Team South Africa hat in terms of
making the rest of the AGOA benefits possible,” said Stander, who is CEO
of Country Bird Holdings Ltd – one of South Africa’s
top poultry producers.

 

Last year, according to South African tax
authority data compiled by SAPA, the United States exported more than
87,000 tonnes of poultry to South Africa, up more than 200 percent from
2016 and second only to Brazil’s 337,476 tonnes.

 

Trade Minister Davies said when the White
House announced tariffs of 25 percent on steel and 10 percent on
aluminium this year claiming imports threatened its national security,
Pretoria sought an exclusion.

 

South Africa’s steel and aluminium
exports to the United States last year were worth more than $650
million, according to South Africa’s Trade Law Centre.

 

But since they constituted just 1 percent
of U.S. steel and a little over 1 percent of its aluminium, they
represented no threat to the United States, South Africa argued.

 

“We were just told that we were out. We
were not going to be considered for exemption. The tariff was going to
apply to us,” Davies said.

 

Now that SAPA has filed a lawsuit to
force a suspension of the poultry quota, the South African government
finds itself in an awkward position. If the anti-dumping tariff is
reapplied, South Africa risks retaliation from Washington
which could have a more far-reaching impact on the economy as a whole.

 

The USAPEEC’s Sumner told Reuters his
group would lobby the U.S. government to take action if the quota is
revoked over the metal tariffs.

 

“It has absolutely nothing to do with
poultry trade between the U.S. and South Africa,” Sumner said. “SAPA is
trying to be opportunistic here and to increase trade frictions
unnecessarily.”

 

South African meat importers also oppose
any suspension of the quota. They say it would push up prices for
consumers and could provoke Washington’s wrath.

 

“It’s quite possible the Trump
administration would take South Africa on,” said David Wolpert, CEO of
the Association of Meat Importers and Exporters of South Africa.

 

The form of any possible U.S. retaliation is unclear for now.

 

“We cannot speculate on what South Africa
may or may not do with respect to its tariffs and non-tariff barriers,”
a U.S. State Department official wrote in response to Reuters’ queries.

 

But analysts and South African officials worry the country’s AGOA benefits may be in danger, again.

 

Washington used the threat of a
withdrawal of AGOA benefits to press Kenya, Uganda, and Tanzania to roll
back tariffs last year on second-hand clothing from the United States.
Rwanda refused and its AGOA benefits were curtailed
in July.

 

A blanket suspension of South Africa’s
AGOA status would hit the transportation equipment industry hardest.
About 85 percent of its nearly $1.4 billion in exports to the United
States were covered by AGOA last year.

 

Ultimately, with legal action pending,
the South African government’s hands may be tied. And despite the
broader economic implications, South Africa’s poultry industry is
standing firm.

 

“We agreed something to benefit the South
African industries. And that benefit has been taken away … We just
want what’s fair,” SAPA’s Stander said.