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Isabel Knößlsdorfer, doctoral researcher at Georg-August University of Göttingen
Protectionist policies like tariffs supposedly protect domestic producers if they cannot compete with cheaper imported products. Some African countries have therefore opted to impose such import restrictions for a number of products. For the case of chicken imports in Ghana, this study analyses whether restrictions would lead to overall positive or negative welfare effects among households.
This article first appeared as a news item in Rural21 and is part of a media cooperation between Rural21 and weltohnehunger.org.
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Our study draws on data from the 7th round of the Ghana Living Standards Survey (GLSS7) from 2016/2017, a nationally representative household survey with about 14,000 household observations. The data includes information on chicken consumption and production, while distinguishing between consumption of fresh and frozen chicken. Based on market reports and other literature, it is fair to assume that the frozen chicken meat is imported, while the fresh meat is domestically produced. Additional local market price data were also collected in 2016/2017 as part of the GLSS7 and used to compute regional chicken prices.
Descriptive statistics show that around 43 per cent of all households consumed any chicken in 2017. At 36 per cent, frozen chicken consumption is much more common than consumption of fresh chicken (6 %). Around 15 per cent of all households owned chicken, either for the production of eggs or meat. Only 4 per cent sold any chicken during the 12-month survey period. The proportion of households hurt directly by cheap chicken imports is therefore rather small.
Regarding the distribution across rural and urban areas, rural households are more likely to own chicken and to sell any chicken than urban households, where only seven per cent own chicken. Consumption-wise, urban households are more likely to buy chicken from the market – either frozen or fresh – than to consume their own chicken. In both rural and urban areas, poor households are more likely to sell chicken and consume their own chicken than non-poor households. To identify poor households, we used the official poverty line, as defined by the Ghana Statistical Service (2018) for the GLSS7 data. A household is defined as poor if its consumption expenditures are below 1,761 Ghanaian cedi per adult equivalent and year.
In the first scenario, with an increase of the import tariff on chicken from the current 35 per cent to hypothetical 50 per cent, prices for chicken meat would rise by about 11 per cent for imported and 6 per cent for domestic chicken, respectively. In the second scenario, with a prohibitive tariff, prices for imported chicken would increase so much that this market segment would cease to exist, and imports would drop to zero. Prices for domestic chicken would then rise by 34 per cent. These new prices would affect consumption and production of chicken in Ghana as follows.
On the consumption side, only those households who purchase chicken products from the market would be affected. In the first scenario, consumption of imported chicken would decrease by 6 per cent, whereas consumption of domestic chicken would decrease by 3 per cent. In the second scenario, the changes are more drastic, as consumption of imported chicken would decrease by 100 per cent and consumption of domestic chicken by 17 per cent.
While consumption would decrease, as expected, market supply levels among those households that sold any chicken would increase.
In the first scenario domestic chicken sales quantities would increase by 3 per cent. In the second scenario, sales quantities would rise by 17 per cent. Accordingly, average incomes of these households would increase by 22 per cent and 74 per cent in the two scenarios, respectively. While these are large effects, they only affect a small proportion – about four per cent – of all households as the rest are not involved in chicken sales.
As expected, higher import tariffs would lead to welfare losses on the consumption side and to welfare gains on the supply side.
The proportion of households that would gain from additional import restrictions – those who produce chicken – is much smaller than the proportion of households that would lose as consumers.
Thus, the average consumption losses would be much bigger than the average gains from additional sales, meaning that the overall welfare effects of higher import tariffs would be negative. The total negative welfare effects would be much larger with a prohibitive import tariff than with a 50 per cent tariff, as with a prohibitive tariff, the market for imported chicken would cease to exist. Overall effects in both scenarios would still be relatively small. This is true for all household types, poor and non-poor, as well as for those living in rural and urban areas. There are however differences in the scope of gains and losses. It should be kept in mind that the proportion of households selling chicken might potentially increase in the long run with consistently higher market prices.
Non-poor households would suffer more from chicken import restrictions than poor households, as non-poor households in all groups tend to purchase more chicken from the market.
That means they depend on the price of chicken more than those households who consume a larger share of their chicken from their own production.
Therefore, we also express welfare effects relative to households’ total food expenditure. In both scenarios and for all groups of households, the total welfare losses would account for less than 2.3 per cent of total food expenditures. The main reason for this relatively small effect size is that chicken consumption, production and sales quantities are small for the average household in Ghana. For comparison, we also analysed the welfare effects when considering only households that consumed or produced any chicken. In such a case, the welfare effects increase in magnitude, but the direction of the effects remains unchanged. This means that at least in qualitative terms, our results may also hold if chicken consumption in Ghana continues to rise. This is also an important notion for those other African countries where the consumption of chicken meat plays a larger role than it currently does in Ghana.
Given the negative welfare effects of both hypothetical scenarios, additional import restrictions for chicken cannot be considered a pro-poor policy in general. Import tariffs do not seem to be an appropriate way to protect producers of chicken in Ghana from cheap imports, because only a small proportion of households are involved in production and the majority of them are net consumers who would be negatively affected. Targeted support measures, for example through technical assistance or direct income transfers, could be a better strategy. Overall, cheap chicken imports do not seem to be as harmful for poorer Ghanaian households as often claimed, and without access to alternative protein sources, cheap imported chicken products contribute to improved nutrition of income-restrained households. Furthermore, policies to strengthen local infrastructure, technologies, and institutions are better suited to promote sustainable development than import restrictions.
An additional question is also whether it would really make economic sense for countries in Africa to foster a commercial broiler sector for which developing international comparative advantage will be very difficult under current conditions. Fostering other agricultural sub-sectors for which African countries have stronger comparative advantages (including mostly raw and unprocessed products, like cocoa and its derivatives) would probably make more sense economically and socially.