Minister of Agriculture and Fisheries Pearnel Charles Jr was given a baptism of fire upon delivering his first speech under his new portfolio. The minister stated that his ministry is considering removing the common external tariff (CET) and stamp duties on imported leg quarters. This initiative was touted as a measure to relieve Jamaican households of the significant increases in chicken prices. The backlash was swift from poultry industry stakeholders. The parliamentary Opposition reacted cautiously.

As is the case with many well-intentioned policy initiatives, there are layers which must be carefully considered. The minister has been accused of not fully understanding the sector. This is debatable, and certainly his new ministry must have technocrats with knowledge of the sector. Further, it is reasonable to expect that the Cabinet would have given Minister Charles the “green light”.

Still, it appears that consultations between the Ministry of Agriculture and Fisheries and poultry industry stakeholders are at a very early stage.

Article 83 of the Revised Treaty of Chaguaramas (Caribbean Single Market and Economy – CSME) spells out the conditions under which the CET can be suspended. An amendment to Article 83 was ratified by Jamaica in 2014. Countries which have ratified the revised treaty are obligated to allow the duty-free access of goods from other signatories. Member countries have a schedule of common tariffs to be applied on imports from third-party countries (non-members). In so doing, products from members countries are given preferential treatment. As an example, the treaty allows for poultry meat to be imported free of duty into Jamaica from member countries such as Antigua & Barbuda. To temporarily suspend the CET on poultry meat the Government of Jamaica will have to make a request to the Council for Trade and Economic Development (COTED). In-between meetings of COTED the secretary general of Caricom can grant the request, but only where the request is made in terms of the preconditions contained in subparagraphs a, b and c, paragraph 3, of Article 83.

The current proposal by Jamaica seems to be based on the cost-of-living precondition — subparagraph e, paragraph 3. As I understand it, requests must include the volume of the product for which the CET suspension is being requested. If no member country can meet the quality or the quantity needed, as a whole or in part, then Jamaica will be given a specific time frame within which the CET would be suspended.

I have heard no mention of a specific quantity of leg quarters which the Government is aiming to have imported to bring relief to the market. There is also no indication as to precisely how long the suspension is expected to last. And, perhaps more importantly, is the Government considering intervening in other industries to bring relief to consumers? Indeed, global supply chain disruptions will likely leave no industry unscathed, and Jamaican manufacturers import significant amounts of inputs used in their production processes.

It so happens that requests for suspension of the CET are common. There are cases in which Jamaican and Guyanese firms have requested, through their respective governments, CET suspensions to allow for the importation of refined sugar, which is needed as a raw material in their production processes. This example underscores the sad state of our regional sugar industry. In the case of the proposed CET suspension, readers should note that the suspension will only apply to imports of leg quarters. However, the effects will affect the wider industry, as leg quarters can be substituted for other parts. It would also be useful to hear about the CET on inputs used in the poultry industry. Indeed, to better understand the implications of the proposal more information on the sector needs to be objectively discussed in the public space.

I think the Government of Jamaica will be allowed to temporarily suspend the CET should they go ahead with the proposal. To be sure, with the CET firmly in place most of Jamaica’s poultry imports come from the US and Canada. This suggests that the rest of Caricom is unable to supply the Jamaican market in any significant way. Further, Jamaica exports poultry meat to Caribbean countries; the Cayman Islands is the main export destination.

Given the ongoing global supply chain crisis, will the removal of the CET have the expected effect?

Indeed, the cost of importing goods has increased significantly and foreign producers might very well be facing their own cost pressures. The minister notes that leg quarters can be imported at $100 per pound with a final price of $160 facing the customer. This means that consumers could pay $200 less than the price of the locally produced leg quarters. I am certainly ‘green’ when it comes to the specifics of pricing in the poultry sector and would appreciate greater clarity on these numbers.

The CET on poultry meat is 40 per cent, and stamp duties are usually a relatively nominal amount. So even after applying stamp duties, CET, General Consumption Tax (GCT), and allowing for importer/seller price mark-up (margins are said to be “significant”), imported leg quarters should still cost considerably less than $360 per pound. Therefore, given the significant price differences noted by the minister, it seems that even with the CET in place importers can alleviate the current market pressures — unless, of course, global supply chain disruptions significantly increase the cost of imported chicken beyond the quoted $100.

Is there a better way to relieve the plight of customers without disrupting the status quo in the poultry sector? When seeking to solve a problem it is best to do so directly, as indirect approaches can have unintended consequences. While all Jamaicans are affected by higher prices, there are certainly those who have enough disposable income to ensure that their diets are not significantly compromised.

The current proposal to remove the CET on leg quarters, if implemented, will benefit wealthy and poor consumers alike. It would be better to directly target poorer households. Additionally, chicken, while extremely popular, is not the only source of protein. There are vegetarians who obviously do not get their protein from the consumption of chicken, but they too are adversely affected by inflation. Why discriminate against them? Can the Government afford additional transfers to those households in need?

Opposition Leader Mark Golding has rightly noted that the removal of the CET will lead to a loss of tax revenue; this is equivalent to the government increasing expenditure. So, instead of foregoing revenue, the idea is to give the equivalent amount directly to less well-off households. To be clear, Golding’s suggestion is that the money goes to poultry producers; this would be an addition to the $50 million already committed by Minister Charles. In my view, giving money to less well-off households is less discriminatory and, if local prices grow significantly away from US prices, the market mechanism suggests that imports will occur even with the CET firmly in place.

It must be noted that domestic producers claim that they can meet demand, albeit at higher prices. The loss of earnings by poultry producers during the ongoing pandemic must also be considered in their pricing. To have an estimate of the reduction in revenue we need to know the current tax revenue earned on imported leg quarters, in addition to estimates of the volume of leg quarters which will likely replace current imports of other chicken parts. If a new importer decides to import leg quarters after the removal of the CET we cannot consider that as part of the reduction in tax revenue as the importer was not in the market before.

The removal of the CET is in keeping with the idea that a world of no tariffs and other barriers to trade is better for all concerned. However, countries in the rich world have spent significant sums to subsidise agriculture. Further, multilateral negotiations to promote freer and fairer trade in agricultural products have been long and contentious. However, it has been recognised that developing countries such as Jamaica cannot compete with the farmers and treasuries of rich countries, and so concessions have been made at the World Trade Organization (WTO). There are costs to these concessions: The incentive for producers to increase productivity and lower prices is diminished. It is reasonable, therefore, that if poultry producers want the continued protection of Government, then surely it has a right to “watch” the sector to protect consumers. This does not mean that I am in favour of the Government’s proposal.

I look forward to more information and more debate.

Dr Samuel Braithwaite is a lecturer in Department of Economics at The University of the West Indies, Mona. Send comments to the Jamaica Observer or braithwaitesamuel@gmail.com.