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Business News of Tuesday, 12 November 2013

Source: foodsecurityghana.com

Ghana Poultry: “Protectionism will save the industry” is a fallacy

The end of 2013 is racing towards us like a runaway train with no Christmas presents on it for the Ghana poultry industry. Many Ghanaians will feast on chicken this festive season - chickens imported from the USA, Europe and Latin America.

A few years ago Ghana’s Ministry of Food and Agriculture (MOFA) under the leadership of Mr. Kwasi Ahwoi claimed that Ghana was producing enough poultry to meet 30% of local demand. The latest USDA (United States Department of Agriculture) report on the poultry industry in Ghana tells a different story, namely that Ghana is only self-sufficient to the tune of 10% of local demand.

The cries to save the poultry industry have been coming a long way with demands ranging from greater protectionism to greater support by government. The USDA report further claims that imported frozen chicken portions are 30% to 40% cheaper than locally produced chicken. With a 20% import tariff one must therefore assume that Ghana chicken is in fact 50% to 60% more expensive than the imported product.

To create a level playing field import tariffs will therefore have to be increased from 20% to 60%. The immediate effect of such a step will be that 90% of Ghanaian poultry consumers will experience an immediate and direct food price shock.

Most profoundly, however, it is clear that such an increase in tariffs will affect Ghana’s poor to a much greater extent than it will affect the rich.

In South Africa, for example, the most affluent spend less than 1% of household income on chicken, while the poorest 10% of South Africans spend almost 15% of their household income on this source of protein. The figures for Ghana may not be that different and the impact of such a sudden increase in the price of chicken will be devastating on Ghana’s poor.

Besides inflationary pressure, higher chicken prices can translate into undernourishment amongst the very poor as they may indeed be deprived of their major source of protein. At the same time large increases in import duty does not guarantee an uncompetitive industry from becoming competitive.

The poultry industry in Ghana is faced with many challenges that include high cost of production, inefficient production methods, limited knowledge of modern poultry management, lack of processing facilities, high cost of energy, the absence of a law that will ensure the importation of good quality and disease-free fertile eggs into the country and to monitor the production of quality day-old chicks from domestic hatcheries.

Besides looking at punitive import tariffs the Government of Ghana (GoG) has announced reviewing import permits to at least ensure that only quality chicken is imported, and has made attempts at reducing production costs by removing customs duties on poultry inputs (feed, additives, drugs and vaccines) and facilitated improved access to veterinary services.

Another option is of course to try and make a case against importing countries for “dumping”. Very recently the poultry industry in South Africa, that is not in nearly as desperate a situation as the Ghana poultry industry, succeeded in getting import tariffs raised on chicken imports from South and North America. Due to trade agreements with the EU, they could however not enforce it on imports from there. The industry then immediately opened a case of “dumping” against the EU - a case that is still pending.

“Dumping" is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production.

Under the World Trade Organization (WTO) Agreement, dumping is condemned, but not prohibited, if it causes or threatens to cause material injury to a domestic industry in the importing country. Making and proving a case for dumping, however, is not that easy.

According to Wikipedia there are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options.

It provides three methods to calculate a product’s “normal value”. The main one is based on the price in the exporter’s domestic market. When this cannot be used, two alternatives are available - the price charged by the exporter in another country, or a calculation based on the combination of the exporter’s production costs, other expenses and normal profit margins.

The agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. In the case of Ghana with a high cost and inefficient industry it will be difficult to prove that the importation of chicken is in fact hurting the industry and the question is rather if it is not helping the industry to bridge the demand - supply gap.

Whatever way one looks at the dilemma of the poultry industry in Ghana, one thing is clear. Higher import duties will not solve the problem! The only way that Ghana can get out of this seemingly impossible situation is to somehow make its local industry efficient and competitive. This can’t be done by taxing competitors out of the market, but by employing very basic and indeed creative strategies.

The GoG has been exposed as spending a fraction of its committed spend on agriculture, and maybe the time has come to get priorities right by dedicating a task force with whatever resources they need to fix this problem - even if it takes ten years to do so.

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