1. 1 1 Portfolio Committee; 10 September 2013 SAPA Presentation to the Portfolio Committee on Agriculture, Forestry and Fisheries 10 September 2013

2. 1 2 Portfolio Committee; 10 September 2013 1. The local poultry industry is vital to South Africa 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want 3. The media battle has been won by Amie, but the real war is for food security and jobs 4. Countries worldwide protect their industries in many ways 5. South Africa is an efficient producer of chicken 6. And imports contain significant risks 7. Brining has been on many peoples lips 8. Tariffs will not cause exploding local prices 9. And SAPA is stepping up transformation SAPA’s story

3. 1 3 Portfolio Committee; 10 September 2013 Poultry is more than 65% of South African consumed animal protein and is the biggest grocery category in South Africa It is the single largest part of agriculture in South Africa – almost ¼ of agricultural GDP It is the second biggest user of local maize and the major user of soy beans It is core to South Africa’s food security Animal products in general represent the major growth area for local agriculture It employs 50 000 people directly and 60 000 indirectly plus 18 000 in the grain industry Poultry meat generates R30 billion in local farm gate revenue, and about R1 billion in corporate taxes in a normal year (excluding all the VAT generated in the value chain). If it collapsed R30bn in foreign exchange would be lost to SA to imports 1. The local poultry industry is vital to South Africa

4. 1 4 Portfolio Committee; 10 September 2013 The industry is in crisis. Latest published company audited results show… Astral SA chicken business -180% loss (results to March) Country Bird Holdings SA chicken business -150% loss(results to June) Rainbow Chicken SA chicken business-103% loss (results to June) Afgri SA Poultry-R229m loss (results to June) Jobs are being lost and businesses are downscaling or closing (eg Darling, Argyle, Berwin, Sangiro are gone or in business rescue) Why is this happening? Traditional exporters like Brazil/Argentina/Thailand continue to grow while a global recession is underway Traditional importers like Russia and China are becoming self sufficient due to food security concerns ….and therefore Africa has become a greater target for the developed world’s unwanted surpluses 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want

5. 1 5 Portfolio Committee; 10 September 2013 And this is what is happening 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want Breast meat and wings are desired by the developed world and exporters (eg Brazil, Argentina and EU countries in surplus) make their money out of these portions Leg quarters are not desired and they are sold for whatever price they can get (From R6/kg to R16/kg over the last year (Sars): almost always lower than what they sell the same thing for in Brazil and EU ie: dumped)

6. 1 6 Portfolio Committee; 10 September 2013 The blue line below shows imports by month for 8 years into SA of bone-in chicken portions (Source Sars) 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want (Source Sars: July 2013) In the last two years imports have doubled…… An extra 10 000 tons per month! The same tonnage as what Rainbow sells to Retail per month Long term average

7. 1 7 Portfolio Committee; 10 September 2013 The EU is the major problem with respect to dumped bone in chicken pieces (Source Sars) 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want (Source Sars: July 2013) EU 45% 2011 Bone in chicken imports 2013 EU 74%

8. 1 8 Portfolio Committee; 10 September 2013 Feed costs, now 60%+ of a chicken company's total costs, have gone up by 20% for two years in a row 2. It is devastated by dumped imports, which are the portions the developed world doesn’t want The imports explosion has caused an imbalance in supply and demand which has suppressed prices and the ability to recover feed and eg electricity/energy costs

9. 1 9 Portfolio Committee; 10 September 2013 The meat importing industry employs only a few thousand people All other jobs referred to by them are in logistics and selling that would be retained if the imported volume is replaced by local production Food security has become one of the Worlds primary agricultural drives. Chicken imported today at very low prices may well become unavailable or very expensive tomorrow if exporters find countries prepared to pay more! There are 110 000 jobs at risk directly and indirectly, and this excludes the grain farming industry in South Africa. After people, chicken farming consumes the most maize and soya in SA. This industry would likely collapse if poultry does, as there is not enough infrastructure to export South Africa’s grain production SA manufacturers profits go into three things:- - payment of taxes - dividends to institutional shareholders ie PIC (if there is any profit) - and the rest is fully reinvested in the SA poultry industry (no-one sits on cash) Importers contribution to the above is minimal 3. The media battle has been won by Amie, but the real war is for food security and jobs

10. 1 10 Portfolio Committee; 10 September 2013 4. Countries worldwide protect their industries in many ways for food security and jobs reasons The world trade in agriculture is highly distorted Countries rely on 1. trade measures and 2. SPS (Sanitary and Phyto- sanitary barriers) 1. Trade Measures Our tariffs are low by world standards For example tariffs/kg for bone in cuts:- South Africa R2.20 EUR5.06 Canada238% (+-R38) Switzerland63% (+-R10) Developing countries Indonesia20% (+-R3) Egypt30% (+-R5) India 100% (+-R16) Russia32% (+-R5)

11. 1 11 Portfolio Committee; 10 September 2013 4. Countries worldwide protect their industries in many ways for food security and jobs reasons 2. SPS (Sanitary and Phyto-sanitary barriers) A few examples of SPS currently Brazil – does not approve any of our abattoirs for export to them China – all abattoir approval worldwide was withdrawn and countries had to reapply Russia – restricted imports by 50% last year (WTO report) EU – no SA abattoirs are approved for export to them. They have also banned all poultry because of Ostrich flu here Australia and New Zealand – bans all poultry imports Our neighbours: Namibia – recently introduced a small quota: Botswana – permit required but none made available: Zimbabwe – no imports from SA due to Ostrich flu : Mozambique – permit required but none made available Nigeria and Kenya – borders closed to all poultry imports due to local industry prioritised Clearly, the world uses these barriers as a less emotive way of restricting trade

12. 1 12 Portfolio Committee; 10 September 2013 5. South Africa is an efficient producer of chicken South Africa is an efficient producer of poultry, slightly behind Brazil but ahead of USA But we are disadvantaged on cost of grain due to logistics, subsidies and tariff realities which grain exporters levy. This is out of our industry control SA manufacturers have had a more than doubling cost of electricity in 4 years, not experienced by exporters SA producers are the lowest cost sellers into the KFC system worldwide! - a strong signal of efficiencySource: KFC Maize and soya make up 80% of feed cost

13. 1 13 Portfolio Committee; 10 September 2013 6. And imports contain significant risks In South Africa 1200 abattoirs are approved for export to South Africa. None of these have been personally visited by South African officials South African abattoirs are constantly overseen by state vets There is thus a huge food safety and health disparity between local and imported chicken Sapa has sampled and independently tested 80 samples of imported chicken pieces in the last 8 months for unacceptable contamination The results reported relate only to the samples tested. (Total sample sets to date = 80 ) Test methods are all SANAS Accredited with the exception of PCR tests. Results

14. 1 14 Portfolio Committee; 10 September 2013 7. Brining has been on many peoples lips Why brine? Brining is an international practise for many meat products (bacon, ham, chicken) When frozen chicken defrosts it loses moisture which needs replacing Quick Service Restaurants (KFC, Chicken Licken etc) request their global standard for moisture addition of 15-20% for succulence and flavour reasons (despite it costing them more) In blind independent taste tests, all local consumers prefer brined product It is safe, technically supported and consumers prefer it Sapa acknowledges governments desire to cap brining and has already submitted a Code of Practise proposal to Daff proposing a moisture cap and a monitoring proposal Sapa is keen to work with Daff on a brine/moisture level cap that all stakeholders find acceptable Contrary to their media blitz, some of the biggest importers have been importing, defrosting and injecting at very high levels

15. 1 15 Portfolio Committee; 10 September 2013 7. Brining has been on many peoples lips If we exclude brine from South African Individually Quick Frozen, compared to all other forms of imported and local chicken, brined IQF is actually the cheapest chicken CURRENT ADVERTISED Frozen Brined IQF Imported Leg Quarters Fresh Braai Pack Fresh Skinless Fillets VALUE PROPOSITION 70/30 Meat / Fat & SkinGrams 489.7 703.7 1 000.0 BonesGrams 214.3 296.3 - BrineGrams 296.0 - - - Total contentGrams 1 000.0 On shelf priceRSP kg 17.00 29.99 46.99 Excluding brine & bonesRSP kg 34.70 42.62 46.99 Protein ContentGrams 91.08 130.89 213.90 %13.94%18.60% 21.39% R/kg index 81% 100% 96% Composition values can vary depending on product mix and bird size

16. 1 16 Portfolio Committee; 10 September 2013 8. Effects of Tariffs: Tariffs do not cause exploding local prices Only five categories of poultry imports are applied for. (MDM or mechanically deboned meat, which is one third of all poultry imports is not applied for) The tariff on each varies according to the price suppression level The SA poultry industry has been selling frozen chicken in 2013 for prices below two years ago, despite massive cost increases in feed Sapa has commissioned three price effect analyses (Genesis Analytics). The most likely effect is less than 10% price increase. This will only go part way to covering feed cost inflation Unfortunately, these tariffs won’t affect the bulk of bone in imports which come from the EU

17. 1 17 Portfolio Committee; 10 September 2013 9. Sapa is stepping up transformation Developing farmers are struggling as much, or more than large companies Governments investment plan in agri land reform will be unsustainable due to poultry imports and dumping Sapa has a Developing Farmers Poultry Organisation (DPFO), with 270 members (60% have had to close) and a national executive committee whose members sit on all Sapa bodies. Sapa and the industry are progressing a Transformation workstream with Government departments and individuals like Dr Zweli Mkhize This involves transformation at industry level (Sapa), as well as company level Sapa is keen to step up the pace of this with key government decision makers, and we need momentum from government as well to assist us

18. 1 18 Portfolio Committee; 10 September 2013 Survive the current crisis Grow Transform Improve skill levels Try to open export markets with Government assistance Support the rural economy Industry future plans

19. 1 19 Portfolio Committee; 10 September 2013 We ask that the Portfolio Committee help us by persuading all relevant Ministries and sector departments to: Help enforce SPS phytosanitary measures; Act more aggressively against illegal imports and exports; Ensure compliance at all ports of entry, especially Durban Treat SAPA as partners with regular communications and meetings – and not as enemies; Open the doors of engagement with government Be candid, open minded and transparent when dealing with SAPA for the betterment of long-term good relationships; Help us deal with high input costs Improve the regulatory framework; and Improve food security.

20. 1 20 Portfolio Committee; 10 September 2013 Thank You eNkosi Dankie Re a Leboga