Editorial | Tread carefully with chicken tariff

That Pearnel Charles Jr, the agriculture minister, has gone quiet recently on the possibility of suspending the tariff and other duties on chicken meat imports may be a good sign.

While proceeding with the plan would provide price relief for consumers and political cushion for the Holness administration, there are significant downside risks. It could severely undermine Jamaica’s poultry industry; push tens of thousands of small, semi-independent poultry farmers out of business; help to shore up an already heavily subsidised US poultry industry; and threaten Jamaica’s efforts at food security.

What is especially hard to fathom is that Lenworth Fulton, president of the Jamaica Agricultural Society (JAS), ostensibly the farmers’ organisation, appears not to have fathomed any of this. He turned coat on the matter, having initially warned against the idea. He did the same thing with regard to the Government’s plan to build a city at Bernard Lodge, St Catherine – Jamaica’s best agricultural soil. The Government funds the JAS.

Like the rest of the world, Jamaica’s economy has been affected by COVID-19-related supply chain disruptions, which have been exacerbated by rising demands for goods and services after the 2020 international recession. The impact is telling, globally, in rising prices, including for commodities such as the grain used to feed poultry.

Prices in Jamaica rose an average 0.6 per cent in January, pushing point-to-point inflation for the 12 months between January 2021 and January 2022 to 9.7 per cent – well outside the four per cent to six per cent target the central bank set for the current fiscal year that ends on March 31.

At the micro level, inflation has been reflected in, among other things, the movement of the price of chicken meat, a protein staple among Jamaicans. In late January, Mr Charles, recently appointed agriculture minister, told Parliament that chicken meat had increased by 17 per cent in the previous 12 months. It would likely rise further.

The Government, in the circumstances, Mr Charles said, was considering suspending the Caribbean Community’s (CARICOM) 40 per cent Common External Tariff on chicken imported into the community, as well as the special duties imposed by Jamaica, that push the tariff to well over 200 per cent. Jamaica’s move would especially cover chicken leg quarters. If implemented, it could mean, Mr Charles said, a reduction in the cost of that cut of chicken to consumers by $260, to $100 per pound.

Jamaica last year produced 124.4 tonnes of chicken meat, a small uptick after a fall-off in demand because of the decline in the tourism industry at the onset of the pandemic. Just over 60 per cent of Jamaica’s output is from two large integrated broiler companies and their contract farmers. The rest of the market is served primarily by thousands of small backyard farmers. Some cheap cuts, such as the backs, necks and feet, are imported under special regimes.

This newspaper appreciates the Government’s concern for the impact of rising prices, especially on the poorest consumers. We are fully aware, also, of the principles of the free market and how protection can stifle innovation and efficiency. We, however, are not slaves to dogma. In which case, there are issues Mr Charles and the Government, and Mr Fulton, might wish to give consideration.

In changing sides in the debate, Mr Fulton, without providing evidence or a coherent argument, claimed “uncompetitive practices” in the industry. What, however, was not mentioned is the implicit government subsidies enjoyed by US poultry producers, who produce nearly 50 billion pounds of chicken meat annually. They export around 17 per cent of their production.

Feed is the largest component of the cost of poultry production – up to 70 per cent. America’s subsidies to commodities farmers under its Farm Bill provide a major indirect cushion to its poultry farmers. For instance, one study by Tufts University, often cited in discussions of the US broiler industry, shows that a rejigging of the Farm Bill in 1996 resulted, between 1997 and 2005, in the market price of corn falling to 23 per cent below the cost of production, as against 17 per cent prior to the 1996 adjustments. In the case of soya beans, because of the price support to farmers, the commodity reached the market at 15 per cent below cost, compared to five per cent prior to the change.

BUOYED BY SUBSIDIES

What this means for America’s poultry producers is that they enjoy a major implicit subsidy in the area of their business with the highest cost. Indeed, the chicken industry, the study estimated, saved US$1.25 billion on feed costs between 1997 and 2005. In addition to this, late last year the US Department of Agriculture (USDA) started to distribute US$247 million in support to America’s poultry and livestock sectors as part of a larger COVID-19 cushion to the farming industry.

Add to these the fact that boneless, skinless breast (value pack) consistently emerges as the top choice of consumers among 61 chicken cuts and packages tracked by the USDA. In the US retail market, this cost is nearly 300 per cent more expensive than leg quarters. With greater demand for the more expensive breast at home, American broiler meat producers, already buoyed by their implicit subsidies, can cheaply export the other bits for which there is low demand.

The bottom line is that America’s farm sector, as are most industrial countries’, still enjoy huge subsidies. They also have the benefit of economies of scale. The playing field, certainly in the case of poultry, is not level. Which is why the Government should be careful about how it approaches this issue.

If the Government wants to support the poorest consumers, while ensuring that it does not dismantle a critical industry and remove the prospects of food security, it might consider direct cash transfers to the identified demographic. Cash transfers have proven to be a good way, in other countries, to help lift the poorest people out of poverty.