1. 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

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

3. 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

4. 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

5. Basics of the poultry industry: national distribution of chickens

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

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

8. 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)

9. 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
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

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

11. 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 %

12. 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

13. 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

14. 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

15. 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”

16. Poultry trade: whole chickens (2012 data)

17. Poultry trade: dark and breast meat (2012 data)

18. Poultry trade: chicken meat exporters (2015)

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

20. Poultry trade: bone-in portion imports, world

21. Poultry trade: bone-in portions, EU

22. Poultry trade: the balanced market idea
6 year period
( )
Poultry meat
production
Imports bone-in portions
Local industry growth
4.6%
( tonnes)
211.8%
( tonnes)
Local population growth
11.3%
Real growth
-6.7%
200.5%

23. Poultry trade: effect of imports
For every tonnes less meat that we produce we will shed direct and indirect jobs
Some companies are about to shed a few thousand jobs in total
Rainbow has retrenched 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

24. Poultry trade: effect of imports
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)
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

25. 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)

26. 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

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

28. 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%

29. 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

30. Key data summary: grain prices

31. Key data summary: grain prices

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

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

42. Conclusion
The survival of this industry, food security, the rural economy and 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

43. Questions?
Source: Getty Images