State and poultry industry need to hatch joint plan
Local producers struggle to compete against countries that are subsidised and assisted have access to cheaper feed.
"The ANC must concentrate on radical economic transformation and ensure that the people become more prosperous. We must grow the economy, create jobs and return the land to our people!”
This statement was taken out the January 8th speech which was delivered by President Zuma during the ANC’s 105th anniversary a week ago. A day or two later it was alleged by the SA Poultry Association that the industry is at a could be retrenching up to 20 thousand workers in 2017 as some businesses are closing down due to the substantial increases in poultry imports coming in the country.
Question is, what is radical economic transformation and how can the state ensure that people become more prosperous, that the economy grows, and that jobs are created when some local industries do not enjoy maximum protection from the state and are not allowed an environment that enhances their competitiveness—which is critical both economic growth and job creation.
The South African poultry industry is continuing its battle against chicken imports, which are posing major challenges for local producers. Even though the industry is the largest segment of the South African agricultural sector, contributing more than 16% of its GDP and in recent years providing employment for about 108,800 people, it struggles to compete against its international peers in local and global markets.
The question emanating from the preceding paragraph is, given the general sentiment that South African poultry producers are less competitive, particularly on the global arena, does it mean they are incompetent producers? If one answers this question objectively, the answer is no. Our producers are extremely competent and are well ahead of the pack when it comes to efficiency.
The main challenge facing South African poultry producers is that, between them and their international competitors, the playing field is not level — meaning the environment under which they operate significantly differs. Poultry producers in SA are forced to compete in an international arena against US, Brazilian and EU producers who are heavily subsidised by and enjoy maximum protection from their governments, making them competitively superior to South African producers, who do not enjoy the same privileges from their government.
Added to this is that the cost of producing a chicken in SA is significantly higher than in other markets in the world. Poultry producers in SA pay more for maize and soya bean meal than do Brazilian and US farmers. Furthermore, under the African Growth and Opportunities Act (which in other aspects benefits SA to greater extent), US poultry producers enjoy exporting unwanted parts of chicken to SA (thighs and drumsticks), which they regard as by-products, at a price far less than the cost of production. This pushes South African producers out of the market. This is "unfair competition" at its best.
A negative spin-off is that the challenges mentioned above have apparently forced some local producers to increase brine percentages in their chicken to be able to stay in the market. For instance, last year there were allegations that some chicken products had brine levels of up to 30%, which means a customer was receiving less than what they were paying for – the rest being salt water.
Although there is no prescribed limit for brine injection for individual quick frozen (IQF) portions in SA, such practice is unethical, especially considering that high salt intake in SA is one of the leading causes of ill health. In addition, such practices are reputationally damaging and bring the industry under intense scrutiny from local and international markets.
Given all the challenges facing the South African poultry industry, an obvious question arises: what needs to be done to better position it so it remains economically viable? This question cannot be answered by just one group — the industry and the government need to come together to map a way forward.
The answer to this question must be based on discussions around creating a conducive environment that allows poultry producers to be competitive in the global market, with the focus on bringing down production costs and creating economies of scale.
While ensuring that the local industry is protected from unfair trade deals, greater focus on ensuring the industry is competitive in the global arena is of great importance because that is the key determinant factor for economic growth and job creation.
• Hlomendlini is senior economist at Agri SA.