That Pearnel Charles Jr, the Minister of Agriculture, has remained silent recently on the possibility of suspending tariffs and other duties on chicken meat imports may be a good sign.
Although going ahead with the plan would offer price relief to consumers and a political cushion to the Holness administration, there are significant downside risks. This could seriously undermine the Jamaican poultry industry; pushing tens of thousands of small, semi-independent poultry farmers out of business; help shore up an already heavily subsidized US poultry industry; and threaten Jamaica’s food security efforts.
What is particularly difficult to understand is that Lenworth Fulton, president of the Jamaica Agricultural Society (JAS), ostensibly the farmers’ organization, seems to have understood none of this. He turned the coat on the issue, having initially warned against the idea. He did the same with respect to the government’s plan to build a town at Bernard Lodge, St Catherine – the best agricultural soil in Jamaica. The government funds the JAS.
Like the rest of the world, Jamaica’s economy has been impacted by supply chain disruptions related to COVID-19, which has been exacerbated by increased demand for goods and services following the 2020 international recession. The impact is indicative, globally, of rising prices, including for products such as grain used to feed poultry.
Prices in Jamaica rose an average of 0.6% in January, pushing point-to-point inflation for the 12 months between January 2021 and January 2022 to 9.7% – well outside the 4% target at 6% fixed by the central bank. the current fiscal year ending March 31.
At the micro level, the inflation was reflected, among other things, in the evolution of the price of chicken meat, a protein staple among Jamaicans. At the end of January, Mr Charles, the newly appointed Minister for Agriculture, told Parliament that chicken meat had risen by 17% in the past 12 months. It would probably increase further.
In these circumstances, Charles said, the government was considering suspending the Caribbean Community (CARICOM) 40% common external tariff on chicken imported into the community, as well as special duties imposed by Jamaica, which push the tariff well over 200 percent. Jamaica’s decision would relate in particular to chicken thigh quarters. If implemented, it could mean, Charles said, reducing the cost of that cut of chicken to consumers by $260, to $100 a pound.
Jamaica produced 124.4 tonnes of chicken meat last year, a slight increase after a drop in demand due to the decline of the tourism industry at the start of the pandemic. Just over 60% of Jamaican production comes from two large integrated broiler companies and their contract breeders. The rest of the market is mainly served by thousands of small backyard farmers. Some cheap cuts, such as backs, necks and feet, are imported under special regimes.
This newspaper appreciates the government’s concern about the impact of rising prices, especially on poorer consumers. We are also fully aware of free market principles and how protection can stifle innovation and efficiency. However, we are not slaves to dogma. In that case, there are issues that Mr. Charles and the government, and Mr. Fulton, might wish to consider.
Switching sides in the debate, Mr Fulton, without providing evidence or a coherent argument, claimed “anti-competitive practices” in the industry. What, however, has not been mentioned are the implicit government subsidies enjoyed by US poultry producers, who produce nearly 50 billion pounds of chicken meat annually. They export about 17% of their production.
Feed is the largest component of the cost of poultry production – up to 70%. US subsidies to commodity producers under its Farm Bill provide a major indirect cushion to its poultry farmers. For example, a study by Tufts University, often cited in discussions of the US broiler industry, shows that a rewrite of the Farm Bill in 1996 caused, between 1997 and 2005, a fall in the market price corn at 23% below the cost of production, compared to 17% before the 1996 adjustments. In the case of soybeans, because of price support to farmers, the product arrived on the market of the cost, compared to 5% before the change.
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What this means for US poultry producers is that they enjoy a major implicit subsidy in their highest cost area of business. Indeed, the chicken industry, according to the study, saved US$1.25 billion in feed costs between 1997 and 2005. On top of that, late last year, the department of Agriculture (USDA) has begun distributing US$247 million to support the poultry and livestock sectors as part of a broader COVID-19 cushion for the agriculture industry.
Add to that the fact that boneless, skinless breast (economy pack) consistently emerges as consumers’ top choice among the 61 chicken cuts and packs tracked by the USDA. In the US retail market, this cost is almost 300% higher than thighs. With increased demand for the nation’s most expensive breast, U.S. chicken meat producers, already propped up by their implicit subsidies, can cheaply export the other cuts for which demand is low.
At the end of the day, the American agricultural sector, like most industrial countries, still benefits from huge subsidies. They also benefit from economies of scale. The rules of the game, certainly in the case of poultry, are not equal. This is why the government must be careful in how it approaches this issue.
If the government wants to support the poorest consumers, while being careful not to dismantle a critical industry and suppress prospects for food security, it could consider direct cash transfers to the identified demographic group. Cash transfers have proven to be a good way in other countries to lift the poorest out of poverty.
