The recent proposal by the South African poultry industry to dramatically increase import tariffs on chicken, (from an already-high 27 percent to 82 percent) justifiably outraged many South Africans. General agreement is that the average price increase to consumers on this critical product would exceed 30 percent, and may be as high as 50 percent. In addition, as reported on Carte Blanche (9 June 2013), most SA chicken producers inject our chickens with water and/or brine before the process of freezing, so the reality is that the situation is much worse — poor quality at a higher price.
Many years ago the textile and clothing industry in South Africa made similar requests, rejected by the government of the time, and the result is that the industry was decimated; sadly, hundreds of thousands of employees were retrenched. But the simple fact of the matter was that the industry was uncompetitive in global terms, and the question today in the chicken industry is the same. One thing is certain and that is, for the millions of other consumers, clothing prices have not increased as dramatically as the price of inflation (although there are exceptions such as school uniforms).
The question therefore is whether we need to protect a handful of producers (and their employees) or the millions of consumers who are struggling to make ends meet? What is it that makes importing chickens across the ocean from Brazil cheaper than producing chickens in South Africa?
There are probably a few factors that contribute: The increasing price of fuel and electricity, the weakening currency which makes imports more expensive, poor agricultural policy by the government and, of course, greater-than-inflation annual wage increases demanded by SA’s powerful unions.
But I believe that it is poor operational performance and a need to protect already-wealthy shareholders that causes consumers to suffer. And when companies insist on squeezing their customers with decreasing value, and increasing prices, customers fight back.
In a world of greater information transparency, and customers that are connected with each other, it is impossible to continue doing "business as usual".
Twenty years ago one of our clients — also in the food industry — boasted that they were able to increase prices every time fuel prices rose by the same percentage of the fuel price increase, with no visible reaction from consumers. This was despite the fact that the fuel portion of their total manufacturing cost was less than 10 percent. For many years they were laughing all the way to the bank — until a junior journalist exposed their cost breakdowns.
Within months of this story the company sold the entire business in desperation to a rival for a bargain-basement price. There are similar examples in the security products industry, the automotive industry, the cement industry and more.
The only way the chicken producers can fight the trend to import is to increase productivity, improve quality and reduce costs. Chickens imported from the other side of the world will have no chance to succeed.
Aki Kalliatakis is Managing Partner of Leadership LaunchPad.