Averting a poultry industry panic

Atty. Hannah Viola, Fellow of the Stratbase ADR Institute and Convenor of CitizenWatch Philippines

The Philippine poultry industry again faces a challenge after the much-dreaded avian influenza outbreak, or “bird flu,” a few years back: the lifting of the price-based special safeguard duty imposition (SSG) on imported chicken meat and products, which led to a sharp increase in importation to the detriment of the local poultry sector.

LOCAL VS. FOREIGN PRODUCTS: CLOSER LOOK AT SPECIAL SAFEGUARD DUTIES (SSG)

In order to protect local industries, Republic Act No. 8800 or the “Safeguard Measures Act” provides for the imposition of special safeguard duties (SSG) to be undertaken in response to increased importation in the country. It provides immediate and temporary protection from import surge or cheap importation of SSG-eligible products, regardless of the country of origin.

In the case of price-based SSG duty, it can be levied when the actual cost, insurance and freight (CIF) value of the product is below the trigger price. As of date, the current trigger price for poultry imports is Php 93.96 per kilogram.

Further, SSG duties are imposed on imports outside the minimum access volume (MAV), which is defined by law as the amount of imports of an agricultural product allowed to be imported into the country at a customs duty lower than the out-quota customs duty.

Tariffs imposed on meat products range from 10% to 40%. Chicken imports are subject to a 40% tariff. The corresponding MAV for pork is 54,210 metric tons (MT) and 23,490 MT for chicken.

IMPORTATION INDICATORS AND IMPLICATIONS

In view of cushioning the rising prices and mitigating the impact of soaring inflation on the consuming public, the Department of Agriculture (DA) requested for the temporary lifting of the imposition of the price-based special safeguard duty (SSG) of imported chicken meat and products last August.

As a result, the levels of importation in the country soared. Latest data from the Bureau of Animal Industry (BAI) show that meat importation, namely beef, buffalo, chicken, duck, lamb, turkey and pork, shot up by 22.73 percent from 691,463 MT in 2017 to 848,648 MT in 2018.

For poultry products, importation rose by 18.06 percent from 244,104 MT in 2017 to 288,203 MT in 2018. Notably, these figures have already exceeded the MAV. At present, approximately two-thirds of the country’s total chicken imports are mechanically deboned meat (MDM), which is one of the primary raw materials used by meat manufacturers to produce processed meat such as hotdogs, sausages and chicken nuggets. BAI data likewise showed that majority of chicken products originate from the United States, followed by the Netherlands and Brazil.

In terms of the supply, data from the Philippine Statistics Authority (PSA) regarding the performance of Philippine Agriculture last October to December 2018 demonstrates an expansion of production by 6.99 percent, accounting for 16.18 percent to the total agricultural output. From January to December 2018, poultry production increased by 5.75 percent.

While this is so, poultry demand in the Philippines is also accelerating at a rapid rate due to urbanization and the “fast food culture” which, in turn, facilitates the growth in the restaurant and catering industries.

According to the latest Food and Beverage Report, consumption preferences in the Philippines, Vietnam, India, and Indonesia have changed due to the growing acceptance of eating out and fast food deliveries attributable to convenience. This change of consumer behavior entails serious implications on the supply of meat products, wherein cheaper imports threaten the margins of the local producers and farmers.

REINSTATEMENT OF SPECIAL SAFEGUARD MEASURES

As a response to the over importation of chicken products, there are calls for the Department of Agriculture to reinstate the imposition of SSG duty as there was “no significant reduction on retail prices of chicken meat even after SSG was lifted” as wet market retail prices still ranged between Php 125 and Php 160 per kilo. Accordingly, the Bureau of Customs (BOC) issued Memorandum Circular No. 209-2018 on October 2018 in order to reinstate the price-based special safeguard duty imposition on imported chicken.

Although the original intention of the temporary suspension of SSG was commendable, its effects were much worrisome for the local broilers and farmers. Based on reports, farmgate prices of chicken fell to almost Php 38 per kilo, below the cost-to-produce of Php 80 to Php 85 per kilo live weight. As a consequence, majority of local farmers quit raising chicken due to big losses.

PAVING THE PATH FOR POULTRY

Now that the special safeguard measures are back in place and inflation is expected to ease by this year, the government must consider long-term policies, which could ultimately pave the way for the growth of the Philippine poultry industry. Such measures include balancing the growing demand of meat by the consuming public, promoting healthy competition of big and small players in the industry, and protecting the welfare of local producers in the agricultural sector.

A review of the volume of chicken imports is recommended to safeguard the local industries, instead of pushing for a total ban on importation, which can affect our commitments in the World Trade Organization (WTO). Accordingly, an independent regulatory council should be established to recommend the ceiling of meat importation and its minimum access volume (MAV). Another proposed solution is to provide government incentives and subsidies to help local feed millers and farmers become profitable and sustainable. Their produce, namely corn and soya, compose 70 percent of the feeds of chicken, which in turn help the poultry sector. Lastly, investment in research and development in the farming sector is needed to decrease our dependence on imported chicken products.

 

 

This article was originally published in BusinessWorld.

 

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