Our Poultry Industry crisis - presenting solutions to the crisis Presentation to: Parliamentary Portfolio Committee on Agriculture, Forestry and Fisheries Our Poultry Industry crisis - presenting solutions to the crisis Kevin Lovell CEO: South African Poultry Association(SAPA) 28 February 2017

Discussion topics Introduction Basics of the poultry industry Poultry trade Key data summary Desired outcomes Best tools available General tools available Industry commitments

Introduction The South African Poultry industry is in crisis!!! ITAC has determined that The industry is in an advanced state of distress The current cause of the distress is imports from the EU and Urgent action is required Collective actions taken to date have been inadequate Permanent shrinkage is accelerating Need to strengthen the regulatory framework to: Support local industry growth and sustainability Prevent rampant subsidisation and dumping

Introduction 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

Basics of the poultry industry: national distribution of chickens

Basics of the poultry industry Production 2016: Approximately 75% of poultry consumption is local product Over 1.014 billion chicks hatched, down from 1.062 billion Over 1.004 billion broilers slaughtered In October 2016, 17.875 broilers were produced. Down from 18.501 in October 2015.

Basics of the poultry Industry Production 2016: Accounts for 25% of poultry production Over 24.801 million hens An average of 406 773 cases of eggs were produced per month in 2016 Down from 407 770 in 2015

Basics of the poultry industry 2015 Figures: Broilers: R38.8 billion Eggs: R9.8 billion Combined: R48.6 billion (12% increase vs 2014 Rand value is 20.9% of all agriculture and 42.8% of all animal products The 2016 figures are expected to be lower than 2015 Gross value of animal products 2015 (source: DAFF)

Basics of the poultry industry: broiler employment (2015) BROILER INDUSTRY: Number of employees (including contract workers) Junior Staff Supervisory and Senior Staff Total Broiler, Hatchery and Rearing (including GP's) 13 608 1 681 14 481 Broiler Processing 26 959 2 143 27 564 Broiler Distribution 4 717 1 695 6 073 Total – Direct employees 45 284 5 519 48 118 Support Industries - Indirect Employees 63 072 Grand Total - Direct and Indirect Employees 111 190 Grand total of related field crops 51 216 Poultry share of related field crops 19 163 The current per capita consumption of poultry meat and eggs in South Africa is relatively low compared to other developed countries, with the poultry industry potentially set to grow by approximately four percent per annum in the long term. Whether this growth will materialise depends on South Africa’s economic growth and the poultry industry’s ability to remain competitive in the global market. More than fifty percent of poultry rations consist of grain and grain by-products, and without reliable and affordable sources of these products, future expansion of the poultry industry will be stifled. Source: SAPA, BFAP

Basics of the poultry industry: egg industry employment (2015)

Poultry trade: effective level of protection 2015 Product Origin Volume (tonnes) FOB value (R) Average FOB price (R/kg) Tariff/level of protection Tariff paid (R) Frozen bone-in portions EU Member States 155,924 2,354,040,679 15.10 0% - Other countries 36,465 370,199,589 10.15 37% 136,973,848 All countries 192,390 2,724,240,268 14.16 5.03% Other chicken products 38,899 303,284,561 7.80 226,036 1,269,934,722 5.62 8.4% 106,571,583 264,935 1,573,219,283 5.94 6.77% All chicken products 194,823 2,657,325,240 13.64 262,501 1,640,134,311 6.25 14.8% 243,545,431 457,325 4,297,459,551 9.40 5.67% 2015: 5.67 %

Poultry trade: skewed markets Less than 3% of imports are prime products Balance is surplus to local requirements in exporting country and undesired – a form of waste Developed world (13% of global population) does not eat all the parts of a chicken – a dietary choice that distorts global markets Waste is dumped into a few unprotected markets like South Africa

Poultry Trade: structural imbalance EU, US, Brazilian and some other markets structurally imbalanced – not South Africa EU High cost producer - higher than South Africa Do not eat all the parts of the chicken leading to surplus and waste products Additionally it imports breast meat Are in an oversupply situation even if they did eat all the parts of a chicken and too expensive to export in normal course of trade US Are in an oversupply situation even if they did eat all the parts of a chicken and more expensive than Brazil to export in normal course of trade

Poultry Trade: structural imbalance cont. Brazil True exporter of whole birds and best cost efficiencies Export breast meat to EU meaning have surplus leg quarters to sell and are forced to follow US and EU pricing models i.e. are forced to dump as a consequence of developed world distortions South Africa Eat all parts of a chicken so structurally balanced market Do pay more for maize and soya beans/ oilcake than Brazil, Argentina and the Ukraine Cheaper producer than the EU

Poultry trade: rule of law US and EU disrespecting the rule of law Both have been found guilty of dumping by ITAC and the US has been found guilty of chicken dumping by China and Mexico Until a lawful forum overturns the rulings the EU and US cannot claim “allegations” of dumping”

Poultry trade: whole chickens (2012 data)

Poultry trade: dark and breast meat (2012 data)

Poultry trade: chicken meat exporters (2015)

Poultry trade: chicken meat importers (2015) Source: USDA

Poultry trade: bone-in portion imports, world

Poultry trade: bone-in portions, EU

Poultry trade: the balanced market idea 6 year period (2010-2016) Poultry meat production Imports bone-in portions Local industry growth 4.6% (73 727 tonnes) 211.8% (162 737 tonnes) Local population growth 11.3% Real growth -6.7% 200.5%

Poultry trade: effect of imports 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 has retrenched 1 350 workers, including managers, last month 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) More than a dozen companies lost in last few years

Poultry trade: 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 mdm 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 mdm and offal) 5% of the national jobs target

Key data summary The Poultry Industry is a big and key rural employer of less skilled labour Good technical efficiency Efficiency vs. competiveness Key supplier to small scale producers in rural communities (day old chicks, compound feed) Various key input cost issues Feed Electricity Labour Drought cost recovery restricted by imports Unsubsidised industry Disease issues – See next slide Global dynamics at play (Brazilian currency, Russian and Chinese demand, TDCA/ EPA effect, agricultural subsidies)

Key data summary: disease management 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

Key data summary: our competiveness (LEI study - 2013 data) Source: BFAP, LEI

Key data summary: global chicken production profitability 2014 EBIT Margins by Country/Region – source Rabobank 11.9% 7.2% 13.0% 1.8% 15.9% 6.3% 9.4% 5.1% 1.9%

Key data summary: trade terminology - productivity vs. competitiveness BRAZIL BENCHMARK – BROILER EFFICIENCIES (2011) Brazil SA producer USA Age days 35 Live weight kg 1 883 1 840 1 805 Average daily gain g/day 53.81 52.56 51.59 Mortality % 3.14 4.52 2.37 Feed conversion ratio 1.658 1.671 1.802 Performance efficiency factor 314 301 280 Source: SA Producer, USDA & Nutron Brazil

Key data summary: grain prices

Key data summary: grain prices

Key data summary: feed costs (2014 ingredient cost comparison) Country Maize Soya bean meal 2014 av. Unit: US$ per tonne USA 165.69 501.33 Brazil 147.16 528.12 SA 209.63 610.75

Key data summary: feed costs (2015 ingredient cost comparison) Country Maize Soya bean meal 2015 av. Unit: US$ per tonne USA 149.90 341.91 Brazil 130.15 368.62 SA 208.75 465.83

Key data summary: feed costs (2016 ingredient cost comparison) Country Maize Soya bean meal 2016 av. Unit: US$ per tonne USA 139.38 349 Brazil 131.01 377 SA 221.89 424.20

Key data summary: transformation opportunity More than ¼ of consumption direct or indirectly through imports. No market needs to be created to establish space for transformation- only need an enabling regulatory framework Key areas of focus for successful transformation Government procurement and retail opportunities Debate on contract production needed- a number of producers do not see this as transformational Size of farms needs clarity- small farms will always need support but can be good for the country

Desired outcomes Create a framework that makes exporters have to produce products for South Africa, not simply dispose of stored waste, if they want to sell to us Be WTO and treaty compliant Imports should be based on national needs, not unconstrained importers greed Imports to be reduced by at least half Industry survival Industry reinvestment Industry growth Food security Job creation Rural development and transformation

Best tools available Measures that make exporters have to produce for South Africa Apply existing standards and regulations equally – a Minister Gigaba approach HPAI inspection regime EU Safeguard and general MFN increase

Best tools available: making exporters produce for South Africa Do not allow re-packing Do not allow re-working Enforce grading regulations Require brine level certification at export abattoir Encourage whole bird imports, not cross-subsidised waste portion imports Increase inspection services- directly or by assignment

General tools available: export support NB. Exports not to secure survival but to assist growth Export agency funded by government Dedicated State support to remove SPS barriers Government to resolve Namibian access matter

General tools available: other measures Poultry meat and egg designation Removal of soya bean and soya oilcake tariffs Replace with direct support to soya bean farmers Indirect maize price management Export control National crop insurance scheme Input cost reduction Mechanically Deboned Meat production support scheme VAT removal Trade distorting subsidisation as per WTO agreement

Industry commitments Industry reinvestment Responsible industry growth SARS contributions Job creation Transformation Rural development Food security Long term partnership post rescue- milestones, reviews

Conclusion The survival of this industry, food security, the rural economy and 130 000 workers and their families is largely in the hands of government If government helps us survive we can grow and contribute substantially to the future of our country There is very little time to act and do the right thing

Questions? Source: Getty Images