A report commissioned by the European Union-South Africa Strategic Economic Partnership, shows that contrary to the local broiler industry’s assertions, the industry's slow growth was not caused by unfair offshore competition, says lead consultant and independent economist Mike de Klerk.

De Klerk on Thursday delivered a presentation, hosted by DNA Economics at the Netherlands Embassy, focusing on the causes and impacts of the "crisis", while also evaluating options for public and/or private sector intervention. He gave insight into his findings in the yet-to-be-published report.

He noted that, since 2008, local broiler production had ranged between 1.5-million tonnes and 1.6-million tonnes, while local consumption had increased by about 2% a year over the same period, adding that imports had been used to fill that “gap".

He attributed the stagnant growth to a “steady increase” in mechanically deboned meat (MDM), which was not produced locally, and which ranked as the fourth-largest product consumed locally.

Additionally, he noted that while brining increased the profitability of local sales, it was unacceptable in many foreign markets and the local producers’ inability to meet the European Union's (EU’s) Sanitary and Phytosanitary (SPS) requirements meant that they were largely confined to the domestic market.

Further, De Klerk noted that the industry had not invested in increasing its total production capacity. “Some firms have increased production capacity . . .  but almost entirely by buying the production capacity of other firms."

He further noted that the industry had invested in improving efficiency but had done very little in terms of increasing volumes.  

His view was that, “to the extent that there has been any dumping”, it had been addressed by the International Trade Administration Commission of South Africa (Itac), adding that the US had “been bumped almost entirely out of the market”, and that many of these restrictions still apply to EU companies.

Additionally, other protections, which he stressed were not necessarily related to “unfair competition” have been implemented. These include ‘safeguard’ protection, where sectors “swamped by imports” apply for short-term protection.

RECOMMENDATIONS
De Klerk’s recommendations to address the stagnant growth and transformational issues within the sector, included penetrating the EU market, as the country was exempt from EU import duties owing to an existing economic partnership agreement. Additionally, he suggested that the industry look at the possibility of producing MDM, develop and increasingly integrate contract growers, and increase soybean production, which was used in feed, and largely imported.

However, he noted that the “generic white meat” market in the EU was “intensely competitive”, that South Africa had a “distance disadvantage” compared with Brazil and other producers, and that the industry would have to “take initiative and bear most of the cost of meeting EU SPS requirements”, given the lack of capacity at the Department of Agriculture, Forestry and Fisheries.

He suggested a private–public partnership similar to those that exist in the local pork and ostrich industries, where industry bears most of the burden in establishing the testing and compliance systems, while government provides “supervision and sign off”.

With MDM, he noted that the only scenario in which MDM production would occur locally, was if specific and significant tariff protection were introduced, adding that there was currently no application for such protection.

Moreover, given the highly concentrated nature of the local industry – 80% of production attributed to just seven companies, with the largest producer accounting for about 30% alone – as well as the inherent limitations of selling live chickens, the only area where De Klerk could see potential for growth of smaller players was in contract growers. However, he also noted that expanding their businesses to the point where they could be contracted by one the larger producers would cost about R15-million, which “automatically excludes a lot of people".

Further, the international soybean market was highly saturated given the the ongoing US-China trade war, and there was no price incentive in increasing local production at present.

DISCUSSION AND REACTION
In a question and answer session after the presentation, South African Poultry Association (SAPA) board member Aziz Sulliman noted that De Klerk expected imports to increase from the current 30% to around 38% by 2027, and cited the Ghanaian poultry industry, where “imports started off small” and increasingly encroached on local market share, adding that today “imports in Ghana are standing at 98%.”

Additionally, Bonnievale community leader and Fair Play representative Lionel Adendorf noted that it was “coincidental that the report is being released as EU countries are rapidly resuming their assault on the local industry".

FairPlay also released a statement noting that, “the latest EU-funded study on the South African chicken industry makes all the right claims to please the EU, but it will neither help to solve the industry’s problems nor create more jobs in South Africa".

It added that, the “predatory” chicken trade practices from the EU and Brazil were creating unemployment among poor people in South Africa and then blaming them for their plight.

Further, FairPlay believes the study “purports to focus on the export potential of the South African chicken industry and the many problems associated with that, but pays little attention to the damage done as a result of an ever-increasing flood of predatory imports".

SAPA also released a statement noting its disappointment, “that a study that purports to identify the ‘underlying constraints to growth, competitiveness and transformation of the broiler industry’” did not investigate the socioeconomic impact of “proven” chicken dumping nor delve into measures to revive and stimulate local industry.

SAPA also called on the EU to review the scope of its research to investigate “real ways” in which it could apply its resources to strengthen the South African poultry industry.

Association of Meat Importers and Exporters (AMIE) CEO Paul Matthew noted its own study which “shows that the claims that importers are taking jobs are not true", adding that without imports there will always be a shortfall in broiler supply.

Additionally, AMIE executive Anton van Rensburg noted that in the last ten years, the poultry industry had shed 12% of its labour force while maintaining the same production volumes,

He also noted that, in reducing the level of brine, industry had actually increased production volumes by some 27% to reach the estimated 1.6-million tonnes, and during that time, “no jobs were created".

He added that the SAPA application to increase tariffs to 82% would only result in a marginal increase in jobs, and not the 30 000 purported by SAPA. Rather it would result in the loss of R1.2-billion in import duties.

De Klerk’s report will be finalised based on the feedback and comments received at the dialogue.