In a recent opinion piece a local economist stated that “A string of anomalies [is] evident in the import of the meat and its final cost to local consumers. The story of how Brazilian chicken is slowly increasing its footprint in SA, to the detriment of the domestic poultry industry, is compelling and worth a closer look”.
Whilst the statement points in the right direction, the subsequent analysis offered to contextualise the Brazilian imported chicken-related products into South Africa is wholly misguided — or simply reflects ignorance of the subject matter.
When investigating the so-called anomalies, one finds that the ‘deep-dive’ into the data mentioned in the piece turns out to be a shallow splash in an unfamiliar pool — the deep and complex pool of international trade statistics.
Working with Dr Martin Cameron, managing director of Trade Research Advisory (a spin-out company of the North-West University, South Africa) and a specialist in the field of international trade, points to the challenges and dangers of superficially looking at trade statistics without a thorough understanding of the dynamics and pitfalls at play. Such an approach can (intentionally or unintentionally) result in misleading observations – and messages to the general consumer – that are plainly irresponsible. Why do we say this?
Upon closer, more thorough investigation of the officially reported trade statistics by the South African Revenue Services (SARS) for imports into South Africa, and the equivalent export statistics reported by Brazil’s Ministério da Economia Estatísticas de Comércio Exterior, it is clear that various factually incorrect observations and conclusions were drawn in the piece. South Africa is not “…getting the deal of a lifetime…” nor is it “…being sold a lie.” The facts appear to be much less sinister, and the allegations reflect an obvious misunderstanding of the statistics and how to analyse them.
Dr Cameron warns that descriptions related to the six-digit tariff codes (which are internationally used to capture trade statistics) can be misinterpreted by the inexperienced. For the novice analyst, it is an easy mistake to infer that ‘frozen chicken not cut in pieces’ translates in layman’s terms to ‘whole chickens’. The technical definition reads ‘HS0207.12 – Frozen fowls of the species Gallus domesticus, not cut in pieces’. For most major exporting countries, such as Brazil, Turkey, France, the USA and the UK, this code refers to what the layman’s expectation, namely ‘whole’ chickens. The UK’s tariff book explicitly describes the product as “Plucked and drawn, without heads and feet but with necks, hearts, livers and gizzards, known as 70 % chickens.”
However, in the South African application of the definition, this code also includes a group of products defined as ‘mechanically deboned meat’ and ‘carcasses (excluding necks and offal) with all cuts (e.g. thighs, wings, legs and breasts) removed’. These two product lines should actually fall under a different code, that of the group ‘HS0207.14 – Frozen fowls of the species Gallus domesticus, cuts and offal pieces’. In most countries, they do not fall under the code for ‘whole’ chickens. Therefore, without understanding the nuance of the South African application of the definition, a rather serious mistake can be made when interpreting the numbers. The challenge in using this information, then, is to group and interpret the reported statistics correctly.
A further pitfall can come from reporting conventions. The standard is to record exports at Free-on-Board (FOB) value (this means the cost of the cargo loaded onto the ship before it leaves the harbour). On the other hand, imports are generally reported in Cost-Insurance-and-Freight (CIF) terms according to the United Nations Statistics Division guidelines. South Africa, however, is one of the few countries that reports import statistics on an FOB-equivalent basis — transport costs, insurance and freight are not included in the value of imports as reported by SARS. Thus, the articles’ observation about the expected difference in Brazil’s export value and South Africa’s corresponding import value is incorrect, as it attributes a part of the difference to the discrepancy between FOB and CIF reported values (while in this case both countries report on FOB-equivalent terms).
The careless use of ‘price’ when referring to the number obtained by dividing the monetary value of imports or exports by their associated quantities (in kilograms), is misleading. In technical terms this result is referred to as the unitary import value (UIV) or unitary export value (UEV), and it should not be confused with the concept of a ‘price’ that a consumer will see on the shelf in the retail stores of South Africa. Such irresponsible use of inappropriate terminology can lead to unnecessary confusion for consumers.
But what does this mean in terms of the numbers portrayed and the inferences made in the article regarding imported chickens “…crossing the ocean…”?
According to the piece: “…in the two years to mid-2020 we paid an average of just R9.72/kg for frozen chicken across all categories [from Brazil] , compared to the average price of [total] Brazilian global export of chicken meat of R22.70/kg…” This calculation is completely misleading. As any household knows, different chicken parts have different costs. Europe imports more high cost, lower weight products (such as chicken breasts), whilst South Africa imports lower cost, higher weight products (such as mechanically deboned meat and offal etc.). The ‘prices’ that the article compares are thus entirely meaningless, as they do not account for these differences. South Africa merely happens to purchase a larger quantity of lower-cost chicken products compared to the Brazilian ‘global average’ export basket. This argument also holds true for comparing Brazil’s total average ‘whole’ chicken UEV with that which is specifically supplied to South Africa.
“..Indeed, the whole frozen bird that cost R16.30/kg as it boarded the ship in Brazil only costs R6.69/kg when it lands.”
Using the correct definition and data, the average unitary export value of the ‘whole frozen bird’ (in FOB terms) was R17.55/kg over the period April 2018 to April 2020. The equivalent value in South Africa was R17.89/kg (as reported by SARS). This is a far cry from the article’s R6.69/kg. The small difference (R0.34) between the correctly calculated unitary export and import values can be attributed to timing differences in reporting and exchange rate fluctuation. It is clear that the landed cost (UIV) in South Africa is very similar to the reported Brazilian export cost (UEV) over this period.
The article introduces another potentially misleading factor in comparing values in rands over such a large span of time. Commodities generally trade in dollars, while SARS reports in rands, so transactions are subject to exchange rate fluctuations. These can cause the same volume of chicken to differ in rand cost (with all else constant) even across relatively short timespans. To demonstrate, in July 2018 the South African UIV for the ‘whole frozen bird’ was R15.00/kg on average, in April 2020 the average climbed to R25.30/kg, while by April 2021 it had dropped again to R13.67/kg.
It is no wonder that the economist nearly drowned in the ocean of his own questionable analysis, leading to comments such as “…shipping companies apparently subsidise the transport costs to such an extent that whole frozen chicken ends up cheaper here than in Brazil…” and speculation about whether “…frozen chickens [are] healed by the ocean breeze when in refrigerated containers…”
As the article notes, “Of course, there could be rational answers to these questions…”, and there are, as demonstrated above… if only one pays more attention to understanding and correctly interpreting the statistics. “ lets start comparing apples with apples”
Association of Importers & Exporters Fourways Johannesburg