PRESENTATION ON THE SITUATION OF THE POULTRY INDUSTRY IN SOUTH AFRICA 22 March 2017

Presentation Outline Acronyms Integrated Value Chains Global Consumption Global trade Challenges in the poultry sector Transformation Competition Issues Effect of imports Responses to FAWU inputs Responses to SAPA inputs SPS and TBT principles Current interventions in the poultry value chain

Acronyms and abbreviations ALOP Appropriate Level Of Protection APS Agricultural Product Standards DAFF Department of Agriculture, Forestry and Fisheries DoH Department of Health EPA Economic Partnership Agreement FAO Food and Agriculture Organization NTB Non Tariff Barriers SAPA South African Poultry Association SPS Sanitary and Phytosanitary TBT Technical Barriers to Trade TDCA Trade, Development and Cooperation Agreement USDA United States Department of Agriculture

Integrated Broiler value chain The value chain of the broiler industry is complex and very sophisticated; The industry is integrated into several other industries like the yellow maize and soybean industry; These industries show very strong competitive and comparative advantages; South Africa produces enough maize for its own consumption and normally export to several other countries; In the past South Africa were a net exporter of soybeans and a importer of high protein meal; Processing capacity increase dramatically the past few years, this will lead to a scenario where South Africa will import less high protein soybean meal and do not export any soybeans anymore; and The demand for soybeans will further increase and this will probably lead to an equilibrium situation where less land will be utilise for maize and more for soybeans.

Source: 2014 Post-Harvest Innovation Programme.

Global Consumption

Global trade Major Exporters Global Trade Major importers Products USA Brazil Global Trade USD$ 17,9 Major importers Asia Middle East Russia Africa EU Products `Whole bird frozen products Raw products (IQF cuts) Processed meat

Global poultry trade: chicken meat exporters (2015)

Global poultry trade: chicken meat importers (2015)

Challenges within the Poultry Sector Various key input cost issues Feed – impact of drought on maize and soya prices [import parity pricing]. SA pays more for maize and soya than Brazil and Argentina Feed costs up to 70% for broiler production Electricity – increase in ESKOM tariffs; and Labour – increase in labour cost [the question of labour being a sacrificial variable cost Earnings before interest and taxes [EBIT] is one of the lowest [1.9%] if compared country to country with other poultry producing countries Unprotected industry - unsubsidised production and relatively low tariffs on imports [211% increase in imports of bone in chicken over the past 6 years] Safeguard duty (13.9%) now in place on EU imports New brining regulations – halved from 30% to 15% in Individually Frozen Portions ; Global dynamics at play (Brazilian currency, Russian and Chinese demand, Trade, Development and Co-operation Agreement (TDCA)/ Economic Partnership Agreement effect, agricultural subsidies).

Transformation SAPA has a Transformation Agenda but has shown little progress regarding Transformation within the poultry value chain. Currently imports account to just over to ¼ of local consumption meaning that there is opportunity for growth in the sector. The Agri-BBBEE Charter which is the sector code of BBBEE has five elements to address transformation in the commercial subsectors and developing sectors. These elements are (1) Ownership; (2) Management; (3) Employment Equity; (4) Skills Development; (5) Preferential Procurement; Enterprise Development and Poverty Alleviation. SAPA members need to show commitment towards transformation. Transformation is mandatory within the sector. It is not conditional and is not a trade -off arrangement for bargaining. It is a basic requirement for cohesion within the sector.  

Competition Issues Concentrated Industry: several anti-competitive fines & investigations over the past few years Previous investigations by the Competition Commission and fines levelled on the Industry related to: Collusion & Price fixing Information exchanges Abuse of dominance Mergers and acquisitions Commission tracking retail prices and continue to monitor the industry • Rising feed costs as issue of concern • Retail mark-ups an issue of concern

Poultry within SA agriculture: effect of imports Multiplier effect on jobs: For every 10 000 tonnes less meat that we produce we will shed 1 069 direct and indirect jobs Some companies are about to shed a few thousand jobs in total Rainbow retrenching 1 350 workers, including managers, at present Country Bird will close down their Mahikeng abattoir, and 939 direct and 1605 indirect jobs will be lost without government intervention Mike’s Chickens in business rescue/ shut down (38 year-old company) Daybreak, first significant black owned producer, in major difficulties Other companies cutting back on production (Astral on short-time)

Poultry within SA agriculture: effect of imports…. 26 725 - The number of direct and indirect (including grain) jobs that could be created if we did not import any chicken meat (excluding mechanically deboned meat and offal) 48 853 - The number of direct and indirect (including grain) jobs that could be created if we did not import any chicken meat (including mechanically deboned meat and offal)

Food and Allied Workers Union Proposed Wayforward by FAWU The response of DAFF Immediate measures We immediately need to raise tariffs and implement safeguard measures and explore imposing anti-dumping duties. A safeguard duty of 13.9% was implemented on all bone in portions from the EU in December 2017 ) now in place on EU imports (International Trade Administration Commission)

Food and Allied Workers Union Proposed Wayforward by FAWU The response of DAFF Short run and Medium Term Measures In a short run and immediate term we need to explore embarking on a ‘‘trade war’’’ with the EU by employing reciprocal technical barriers to trade placed on the leg-quarters that our country’s retail-chain stores are importing from the EU. Any proposed measure should be in observance of the provisions and principles of the World Trade Organization with specific reference to the Agreement on the Application of Sanitary and Phytosanitary Measures (WTO SPS Agreement) and the Agreement on Technical Barriers to Trade (WTO TBT Agreement). Furthermore the measures should be in line with the provisions of the international standards setting bodies in the field of animal health; food safety, plant health and quality assurance.

Food and Allied Workers Union Proposed Wayforward by FAWU The response of DAFF Short run and Medium Term Measures It cannot be that our poultry products, specifically breasts, are forbidden from entering the EU owing to some swine-flu [highly pathogenic avian flu] in ostriches but enveloped to be covering the poultry products by the EU yet EU does experience swine-flu [highly pathogenic avian influenza] , as they just did recently, in actual poultry sector and we quickly remove the safeguard measures as soon as they unilaterally claim to be swine-flu free without us embarking on thorough going verification of their claims. The DAFF within its mandate ensures that measures are adopted that exporting countries do not export products which may be an Avian Influenza risk. South Africa imports from mainly from 10 EU member countries. Currently, 8 of those countries are still suspended due to outbreaks of HPAI . Appropriate actions are taken all the time by suspending imports from these affected countries until satisfactory information in line with international standards has been supplied by the affected country . The information is on the surveillance conducted. If the information supplied is not satisfactory, then South Africa does not re-open the market for those countries.

Food and Allied Workers Union Proposed Wayforward by FAWU The response of DAFF Long-term Strategic Issues The long- term measures including working on interventions that will assist in further upscaling the cost other competitive moves in getting our industry to deal with even competing with the likes of Brazil and three other countries that are more competitive than RSA….. To this end, we need to ensure that the input side of the value, especially the maize and soya, is domestically reliant on instead of importing or to only import from the region of SADC. The recently concluded Operation Phakisa on Agriculture, Land Reform and Rural Development further firmed strategies on the value chain approach towards production including on poultry and linked feed value chains on soya and maize. The strategies from Operation Phakisa strengthen the work as already done under the Revitalization of Agriculture and Agro-processing value chains and the Agricultural Policy Action Plan.

SAPA desired short and long term outcomes DAFF response Desired short and long-term outcomes Create a regulatory framework that: Requires exporters to produce products for South Africa - not simply dispose of stored waste Is WTO and treaty compliant Ensures imports are based on national needs, not unconstrained importers greed Reduces imports by at least half Supports: Industry sustainability Industry reinvestment Industry growth Food security Job creation Rural development and transformation In principle agree with SAPA on the short and long term outcomes. Any proposed measure within the regulatory framework of the DAFF should be in observance of the provisions and principles of the World Trade Organization with specific reference to the Agreement on the Application of Sanitary and Phytosanitary Measures (WTO SPS Agreement) and the Agreement on Technical Barriers to Trade (WTO TBT Agreement). Furthermore the measures should be in line with the provisions of the international standards setting bodies in the field of animal health; food safety, plant health and quality assurance, the World Organization for Animal Health Codex Alimentarius Commission and the International Plant Protection Convention respectively.

South African Poultry Association Disease Management DAFF Response High disease pressure with high socio-economic impact Food security Poverty alleviation Provision of employment opportunities Threat of new diseases or new outbreaks through trade Need for a PPP Industry commitment - Poultry Disease Management Agency formed Needs formalised relationship with DAFF that allows for optimisation of disease management resources Urgent need for improved disease management Improved disease management is critical for sustainable development of the poultry industry. Effective disease control is captured in Operation Phakisa, APAP, RAAVC and the Veterinary Strategy. This includes pre-border, border and post border interventions in disease control. DAFF will explore the concept of a Poultry Disease Management Agency in the context of revolutionising veterinary services in South Africa.

South African Poultry Association Measures proposed DAFF response Export Agency supported by government Dedicated support to remove SPS barriers Government to resolve Namibian access matter The matter needs further deliberation. Yes a dedicated unit to conduct risk analysis is currently under consideration by the DAFF. The matter has been discussed at thedti interactions.

South African Poultry Association Measures proposed DAFF response Removal of soya bean and oil cake tariffs Indirect maize price management Mechanically deboned meat production Could have negative effects on domestic soy production [as outlined in APAP]. The impact of such measures needs in-depth investigation. Proposal reversal of certain aspects of the deregulation of the SA markets. Exploration through studies is important. Supported.

WTO TBT SPS Coverage of SPS and TBT Agreements Protect Animal Life Technical Barriers to Trade Agreement Sanitary and Phytosanitary Agreement Technical Regulation Any other Objective Protect Human Life Protect Animal Life Protect Plant Life Protect a Country From risks arising from From risks arising from From risks arising from From risks arising from Additives contaminants toxins or disease-causing organism in their foods plant or animal carried diseases Additives toxins pests diseases disease-causing organisms Pests diseases disease-causing organisms The multilateral framework makes provision for the protection of human life, protect animal life, protect plant life and protect the country and TBT issues mainly deal with issues of quality assurance and labeling. TBT SPS

Implementation of SPS and TBT measures Basic principles for implementation of Non Tariff measures in terms of the WTO Least trade-restrictiveness: Measures should be no more trade restrictive than necessary to achieve the appropriate level of protection; Scientific justification: The measures should be based on science and on an assessment of the risks involved; Harmonization: Members are encouraged to base their SPS and TBT measures on international standards set by international standard setting bodies; Equivalence: Members should recognize that different measures can achieve the same appropriate level of protection (ALOP); Non-discrimination: SPS and TBT measures should be applied equally to imports and similar products produced locally. Members should not arbitrarily discriminate between trading partners where identical or similar conditions prevail; Transparency: Reliable and accurate information on existing SPS and TBT should be made available. New or revised measures should be notified in accordance with procedures established in international bodies.

Current interventions within the poultry industry

National Development Plan Winners

THE POULTRY VALUE CHAIN PROBLEM STATEMENT Consumption of white meat is expected to expand by 34% ( BFAP, 2023). This increase is currently supplemented through high levels of imports (especially low-cost frozen portions). . High animal feed prices dampens domestic production. For Soya oilcake, SA still imports a significant amount as compared to what is locally produced. Despite an increase in domestic soya production of over 300% since 1999, this is not keeping up with a rising demand for animal feed. The strategy is to increase production of poultry and animal feed with the aim of lowering feed costs. POLICY LEVERS RISKS ITAC after investigative studies to provide protection against a surge of low-cost subsidised imports of poultry products. Industrial Development Cooperation investment in crushing facilities for soya bean 75% local procurement by government and business geared towards localising value chains. BBBEE codes aligned to developing local food networks Increasing energy prices (electricity) Unstable energy supplies Delays and costs of Environmental Impact Assessments and water licences Increasing input costs – fertilizer, animal feed, fuel and mechanisation

ASPIRATIONS ACTIONS – poultry Add 14 481 jobs to the current 107 784 jobs (direct and Indirect) through increased tonnage of 663 500 poultry production by 2019 Add 14 173 jobs through expansion of 238 500 hectares – Soya production Increased contribution to gross value of Agriculture GDP from R32.9 bil (21.8%) to 41.13 (25%) by 2019 Increasing current levels of smallholder and subsistence producers by 5% by 2019.

ACTIONS – poultry CONFIDENTIAL LEAD DEPT. / SUPPORT OUTPUTS LOCATION SIP11: Economic infrastructure development programme – Integrated Poultry value chain • Provide agro-logistics infrastructure to support development of an integrated value chain and coordinate basic services support to farmers • Revitalization of old irrigation schemes and development of new schemes along rivers NAMC; DAFF; DRDLR;EDD Eastern Cape; KwaZulu Natal; Limpopo; Mpumalanga; Gauteng Increased trade/procurement linkages between smallholder, commercial farmers and feed companies - off-take agreements with feed companies DAFF DTI Land Acquisition: Strategically located land (considering water access, land use capability, proximity to markets etc. acquired to support smallholder farmers). DRDLR; DAFF;DWS;DEA National Poultry Production Programme: • Recapitalisation and development support provided (smallholder); farm infrastructure to new farmers • Standardised & targeted input supply package - smallholder & commercial (soybean/maize) • Standardised & targeted input and on-farm infrastructure supply package (poultry) • Support provided to equity schemes linked to identified value chains DRDLR Poultry research programme, identifying more energy-efficient broiler production systems; and to develop higher yielding soybean varieties, through partnerships with private sector seed companies. Further, a need for Vaccine Development in general bird health research – integration of disease resistant DST ARC National Management Plan for pest and disease - Poultry: Develop integrated national surveillance and monitoring programmes for poultry diseases of importance (e.g., Avian Influenza and Newcastle Disease), residue and food borne diseases ACTIONS – poultry CONFIDENTIAL

SPATIAL MAPS: GUIDE PROJECT SELECTION AND VALUE CHAIN PLANNING National Free State at District and Local Municipalities

Conclusion The South African broiler industry is the mainstay of agricultural production in South Africa: mainly for food security, job creation and economic growth. Sustainability of this sector is of prime importance to the sector and the country. Addressing current challenges should have a measured approach, taking into consideration the growth of the sector in totality. Application of any measure relating to the WTO has to be within the confines and provisions of the WTO .

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