Saving SA’s poultry industry is worth doing

The past couple of weeks have seen lively interaction on poultry-related issues affecting the review of the extension of the US’s African Growth and Opportunity Act. The importance of the act for the economies of sub-Saharan Africa, including SA, as well as the US, is well documented and it is critical that it be extended for a further 15 years, with SA among the beneficiaries.

It is also important that a constructive approach be pursued in addressing challenges facing SA’s poultry industry, which include but are broader than import penetration, for the industry is of vital importance to the economy. The poultry industry is the largest segment of the agricultural sector, contributing more than 16% of its share of gross domestic product. It provides employment, directly and indirectly, for about 108,000 people throughout its value chain and related industries. It supports many businesses and provides a strong platform for rural development, as well as the government’s zero-hunger goals, as it is the main supplier of a protein diet.

It has evolved, over more than 100 years, from basically a set of backyard activities into a complex and highly integrated industry. The industry is, however, highly concentrated, reflecting the levels of investment required to improve efficiencies and produce competitively. The value chain is dominated throughout by a few large companies that rely on the benefits associated with the economies of large-scale production, as well as integrated supply chains that reduce production costs, ensure high throughput levels and diversify products to improve risk management.

Broiler (chickens hatched from the eggs of breeders) producers have faced pressure on their profit margins since 2011, but the situation appears to have improved recently as feed prices declined. The industry has lately started showing an early-stage recovery.

The rand’s weakness has come at an opportune time, though prolonged depreciation will increase the cost of imported inputs and equipment, expanding already significant barriers to entry and expansion.

Though the number of broilers slaughtered and poultry meat produced have increased in recent years, SA still does not produce sufficient quantities to satisfy demand, with the shortfall addressed through imports. Poultry imports, particularly chicken, have posed a major problem for the domestic industry, especially in recent years and particularly for smaller producers.

Technically, South African broiler growers are efficient compared with international producers. But when feed costs are introduced into the equation, our growers are generally found to be less competitive. As a result, within a global context, the economic efficiency of local producers does not compare as well as their technical efficiency, largely due to higher production costs. Therefore the industry is struggling to remain competitive in global markets.

The industry faces several significant challenges that have hindered its competitiveness and growth potential. The principal ones pertain to rising feed costs, import penetration, rising electricity tariffs and access to reliable supply, exchange rate fluctuations and, among others, access to finance and markets.

Considering its pivotal role in the economy, particularly employment and food security, the industry’s long-term sustainability needs to be prioritised. It is vital to improve the competitiveness of various segments of the value chain, especially those aimed at lowering feed costs.

Strong emphasis must also be placed on industry transformation. Poultry producers and processors must be assisted in attaining economies of scale, gaining market access and achieving sustainable competitiveness. This will gradually contribute towards satisfying local demand, which is growing rapidly, while enhancing the industry’s overall contribution to the economy, including job creation.

• Maia is the Industrial Development Corporation’s head of research and information.