3. AMIE Presentation Portfolio Committee on Agriculture, Forestry and Fisheries Cape Town 13 March 2015

4. AMIE introduction and presentation on challenges facing the industry Introductions – David Wolpert CEO AMIE (ceo@amiesa.co.za)ceo@amiesa.co.za – Georg Southey (sub com) (georg@merlog.co.za)georg@merlog.co.za Context Fallacy Challenges Opportunities

5. The Constitution of AMIE gives the Main Objects as : To promote and to protect the interests of the Members. To deal with all matters that may affect the common interest of the Members. To confer and collaborate with all bodies controlling and administering the Meat Industry in Southern Africa. To convey views and recommendations to all concerned in order to improve the meat import and export business. To seek and maximise official recognition of the Association. To promote and safeguard the common interest of Members in their activities as Meat importers and exporters. To represent Members in their dealings with the South African Government, SARS, ITAC, Veterinary Services, NAMC and other regulatory bodies. To disseminate amongst it’s Members information on all matters affecting the Meat Industry. To correspond and liaise with any similar Associations in other countries. To promote, support or oppose any legislation affecting the rights or objects of the Association and its Members. To promote ethical business practice amongst all Association members and in the meat industry.

6. Imports in Context : – Market Size – Import participation – Jobs – Domestic advantage – Current Duty Structures – SPS – Why Import Affordable alternatives Consumer choice Supplement local production – Balancing supply and demand – Food security

7. Market Size – + 2 billion kg pa – +R 35 billion pa – Imports less than 10% by volume and value – Bone in Imports 2013: 144 million kg <7% of consumption – Water sold as Chicken +500 million litres pa – Big 5 >70% of Market – > 70% sold as IQF (individually quick frozen) (brined 30%+)

8. Domestic Production Vs Imports 2006-2013Annex 2 (expressed in kg) livemass / bird 1.84% brine declared :-30 Slaughtered mass / bird1.396 ABCDEFGHIJKLM Annualbirds prod****** Growthper annum20%60%brinekg IQF40%Total Total Con-Imp % of Local ind Total offalInjectedkg addedproduced uninjecte dexcl offalincl offalImportssumptioncons. 2006 831 441 1 160 692305 970696 415298 464994 879464 2771 459 1551 765 125181 3971 946 5229.32 20074.03% 864 962 1 207 487318 306724 492310 4971 034 989482 9951 517 9841 836 290144 8881 981 1787.31 20086.83% 924 072 1 290 005340 058774 003331 7151 105 718516 0021 621 7201 961 77898 8452 060 6234.80 20090.80% 931 443 1 300 294342 771780 177334 3611 114 538520 1181 634 6561 977 427123 2302 100 6575.87 20104.01% 968 796 1 352 439356 517811 464347 7701 159 234540 9761 700 2092 056 726138 2192 194 9456.30 20111.04% 978 873 1 366 507360 225819 904351 3871 171 291546 6031 717 8942 078 119201 6962 279 8158.85 20121.28% 991 432 1 384 039364 847830 423355 8961 186 319553 6161 739 9352 104 782238 9582 343 74010.20 *20135.34% 1 044 420 1 458 010384 347874 806374 9171 249 723583 2041 832 9272 217 274209 0492 426 3238.62 23.34%15.24% * upto Oct 2013 (source SAPA)

9. Bone in cuts 4 year review Bone in cuts simple analysis 5 years Imports by origin by Month Abnormal high imports due to dumping duty fears **dumping application initiated September 2013 2014%2013%2012%2011% Summary:Brazil7,089 19,956 36,042 39,521 Non EU11,6187.3927,80919.2148,72830.1463,90050.87 EU 3108,706 105,776 95,099 42,858 EU27145,54892.61116,93980.79112,92769.8661,71949.13 Total Imports157,166100.00144,748100.00161,655100.00125,619100.00 EU 3 = NL,DE,UK Non EU = all MFN nations source SARS

10. Bone in cuts 4 year review (monthly) JanFebMarAprMayJunJulAugSeptOctNovDecTotal% of Tot 2014BR175473454641893123073438314085711002770894.51 Non Eu226107310796661376142619688181847723180236116187.39 EU3779765481372313915149481724236032314664284159127443210870669.17 EU 278895710814509147341621918611458150551170715450178041087514554892.61 Total91218181155881540017595200376549587313554161731798411111157166100.00 2013BR1205166425142761276233781698152813523094813041995613.79 Non Eu1493179430843187398350563747182419596325894612780919.21 EU37870600586008718959472575907640712274742616224949410577673.08 EU 278977674010231957510488794866626916130688698173421029411693980.79 Total104708534133151276214471130041040987401502793301793110755144748100.00 2012BR2117255221123390276226921863299742044520459422393604222.30 Non Eu2606296526334072483138072757352954745932618139414872830.14 EU37986889910177943361103978354868399367125421138348379509958.83 EU 2794391110612262108817261466741768173107441512912946614311292769.86 Total1204514071148951495312092847469331170216218210611912710084161655100.00 2011BR5739593652712287378534883050352119161434100420903952131.46 Non Eu8168886877864417611560535437563633922532256229346390050.87 EU3117097821631509137515815361446761636225590259644285834.12 EU 271777165537002722202022548136622882028643880975736171949.13 Total99451052311486713981358307135731186411594111751137110507125619100.00

11. Jobs in the import sector – Local Jobs direct5,000 – Indirect (making consumer ready) 10,000 Domestic product leaves highly mechanised factories in Retail Ready packs. Imported product arrives in bulk and has to be converted into Retail Ready form. (the two do not compete) These are real jobs which do exist

12. Domestic Advantage: – Export Costs – Freight – Clearing Costs – Duty – Domestic “retail ready” – Imports SPS requirements

13. Duty Structure: Five tariff Headings Current 0207 12 20 CCS31% 0207 12 90 W/Birds82% 0207 14 10 B/less12% 0207 14 20 Offal30% 0207 14 B/in37% EU Free TDCA

14. SPS: – All Import containers subject to export inspection and certification – All import containers subject to inspection at Port of Entry – All import containers subject to Laboratory testing Bacteria and pathogens – Import requirements amongst most stringent in the world

15. Fallacy Cheap Imports: – Customs declared values: are ex works prices – Add Freight and shipping costs – Add Clearing and import costs – Add Cold Storage costs – Add Importers overhead costs – Add Storage Costs – Add Transport and Sales Costs – Add Importer Margin – Add Conversion costs to make retail ready

16. Current Scenario: – Chicken Leg ¼ land in store at R 21.00 excl Vat – Conversion and Packing – Add Vat and Margin – Selling Price R 30.00/kg to R38.00/kg – IQF 2 kg land in store at R 19.50 excl Vat – Selling Price R 25.00/kg – The Consumer is making a choice to buy the imported product

17. Challenges: – Food “Insecurity” – Market Access – Brining – Currency – Tariff Protection

18. Food Insecurity: – 48% by low income households spent on basic foodstuffs of which chicken (animal protein) is the largest portion – Chicken inflation way higher than 4.4% inflation and above 6% SARB target – Current Chicken inflation above 8.5% !! Source NAMC February2015 Food Review – Our Consumer should not be forced to pay more than necessary for basic foodstuffs

19. Market Access: – Exports SADC 3 rd Countries – No National Certification standard – SA Disease Status (Newcastle, AI) – Brining (most import countries do not want/allow brine) – No National Strategy

20. Market Access – Imports High Sanitary requirements Time to Process new market applications – Capacity Priorities Deemed Protectionist Policies Re-opening of closed Markets

21. Brining: – Mainly Performed by large producers – Barrier to Entry for New Entrants Lack of access to technology and capital – Moral Theft – Increased Sodium levels (health concerns) – Not Cheap Chicken but Expensive Water – AMIE Supports Brining LIMITS of original proposed 4%

22. Nutrient dilution through brining The Brine effect Poultry Meat lab analysis: Test Sample 1 Sample 2 Sample 3 Energy (kj/100g) 718 873 381 Avail Carbohydrates (g/100g) 3,7 8,2 0,0 Fat (g/100g) 10,0 14,3 2,6 Moisture (g/100g) 67,4 63,2 79,3 Dietary Fibre (g/100g) 0.7 1,1 0,3 Sodium (mg/100g) 96 87 201 Notes: Sample 1&2 are not brined Sample 3 is brined

23. Tariff Protection: – Current Tariff Structure supports current flawed business model – Model needs to change to persuade Global Competitiveness

24. Building a globally competitive industry Access Export MarketsManage Input Costs Balancing the carcassGrow bigger birds Globally Competitive Industry

25. Currency as protection The Rand has Depreciated 34% against U$ And 27% Against Euro Over past 2 years Natural import protection (Source XE.com) ‘Jan 15 Rand USD and Euro Currency depreciation YearU$yoycumulative 20116.63 20128.0821.87 20138.454.5826.45 201410.4723.9150.35 201511.5710.5160.86 YearEuroyoycumulative 20118.85 201210.4618.19 201311.156.6024.79 201414.3929.0653.85 201514.01-2.6451.21

26. What has changed since 2012? Feed cost reduction R 7 bn Rand pa SAPA Return to great profitability More stable labour relations Currency Depreciation 27% - 33% Avian Influenza

27. Opportunities: – Exports SADC Niche markets – Extract Best Value per cut – Wasted Costs Nested Duties (savings of R 750 m p.a -SOYA) Create a CIDP (Chicken Industry Development Plan) with all role players

28. Thank you

29. Water sold as chicken every year twice the volume of imports!! Annex 3 Imported Volume compared to Brining (2012) Extracted from Farmers Weekly AMIE Calculation of Waterless chicken SAPA Quoted at SANCU AGM Mt Local Production 1 614 027 Total local Production 2 152 036 Water added (&sold as chicken) 538 009 =33% injection Total imports 2012 238 000 <10% of consumption Water as Percentage of imports226.05%

30. Local Chicken Industry Productivity disadvantage (due to flawed business model) Annex 4 Processing costs and slaughter weight ABCDE local disadvantageLocal disadvantage % Number of Chickens100000 00.00 Live weight1.842.250.4118.22 Slaughter weight (Meat)1.3801.6880.307518.22 Overhead costs100000 00.00 Average cost per bird1.00 00.00 Average cost per kilogram0.7250.593-0.132-22.28 This is a simplified diagram of processing price disadvantage. Coupled with product mix disadvantage there is a major difference in yield and returns.

31. Addicted to Protection Annex 5 History of protection 1997-current – 1997B/In R 2.20 (2 years) (BTT BR4078) – 2001 USA Dumping – 2004Duty Increase – 2006USA Dumping Sunset Review – 2006-13Brining (hugely profitable) – 2011USA Dumping Sunset review – 2012 Brazil Dumping application – 2013Duty review (non EU) – 2014Avian Flu – 2015DD EU (Holland, UK, Germany)