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November 18, 2011

Trends in the South African poultry sector

According to analysis published by USDA, the South African poultry meat industry is the largest agricultural sector, contributing 18% to agricultural GDP. The South African industry accounts for 80% of poultry production in the SADC region. Poultry meat, at 32 kg per head, accounts for almost 56% of total meat consumption in South Africa, with per capita consumption having more than doubled since 1993 (+129%).

The South African poultry industry has experienced 4% growth per annum since 2000, with only a slight hiccup in 2009. The resurgence of production post 2009 was aided by a large surplus of maize, and record levels of soya production, which together considerably reduced feed costs (which fell by 10%). Production growth in 2011 is expected to slow down to only 1%. This slowdown in growth is attributed to higher feed costs and growing imports.

Broiler meat imports for 2010 rose 17% to 240,182 tonnes, with a further increase in imports to 300,000 tons expected for 2011. According to the USDA analysis, ‘broiler meat imports into South Africa are primarily exchange rate driven’, with a 15% increase in the value of the rand in 2010 driving the earlier increase in imports. Brazil accounts for 74% of imports of poultry meat into South Africa, accounting for fully 15% of domestic poultry meat consumption. USDA reports that, against this background, ‘the South African poultry industry has requested [that] anti-dumping duties against Brazil be introduced.’ The International Trade Administration Commission is currently investigating ‘the imports of Brazilian whole birds and boneless cuts’, with a preliminary ruling expected ‘in the first few months of 2012’.

The USDA report notes that the 5-year anti-dumping duty on US poultry meat portions is due to expire in November 2011, although a ‘sunset review’ is currently under way, with anti-dumping measures expected to be extended. Anti-dumping duties charged in South Africa range from R2.24/kg to R6.96/kg, on top of a standard duty of R2.2/kg.

Imports mainly consist of ‘mechanically de-boned meat’, followed by ‘frozen bone-in portions’, ‘frozen boneless portions’, ‘whole frozen chicken’ and ‘frozen offal’. The EU plays only a minor role in this trade.

Product distribution: South African broiler imports, 2010
Product Category

Total poultry imports

%
Mechanically de-boned meat 42
Frozen bone-in portions 32
Frozen boneless portions 9
Whole frozen chicken 9
Frozen offal 8


The sector is dominated by two large producers (Rainbow and Astral), which together account for 46% of production (the third largest producer accounts for only 7%). A process of industry consolidation is taking place, ‘with bigger players buying up some of the smaller producers’. The poultry sector accounts for 30% of total maize consumption in South Africa.

In terms of animal health, while there are challenges, progress is being made, and lower flock mortality rates have been achieved over the past 3-4 years.

Press reports indicate meanwhile that the government of Mozambique is to exempt animal feed from VAT, in an efforts to curb rising costs in the poultry sector. Currently imported frozen chickens are around 10% cheaper than Mozambican chickens. According to press reports, competition from imports is making it very difficult for Mozambican poultry farmers to pay back bank loans, and the situation is seen as critical.

Editorial comment

With exchange rate movements, linked to non-agricultural sector economic developments, currently the main driver of South Africa’s poultry meat imports, the question arises of what implications this has for the use of traditional agricultural trade policy tools. Anti-dumping duties have been used against US exports of poultry parts, with additional duties now being contemplated for imports from Brazil. This can be seen as one means of dealing with the market disruptions arising from heightened exchange rate volatility.

While the scale of Brazilian poultry production and the cost advantages which Brazil enjoys can be seen to overshadow the South Africa poultry sector, the South Africa poultry sector casts a long shadow over poultry production elsewhere in the Southern African region, with neighbouring countries routinely seeking infant industry protection against imports from South Africa. The use of trade policy tools thus plays a dominant role in the poultry sector in Southern Africa.


Agritrade

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