Mail & Guardian
Lockdown chomps chicken profits
Tightened belts meant South Africans ate 19% less chicken last year, and local farmers say dumped imports and the hard lockdown have hurt their businesses
Last year saw a slowdown in most parts of the economy, including companies’ revenues, personal income and, believe it or not, even chicken consumption. According to the South African Poultry Association (Sapa), which represents both commercial and smallholder farmers, chicken consumption is down by 19%, and prices decreased by R2 per kilogram on frozen products from January 2020 to January 2021.
Sapa’s general manager, Izaak Breitenbach, said the decline is due to consumers earning less or losing their jobs during lockdown last year.
Poultry is the most-consumed meat in South Africa due to its price. According to data from Sapa, the per capita consumption of poultry meat in 2019 was 39.3kg.
Data from the agriculture, land reform and rural development department for the same period shows that per capita consumption of beef, pork, and mutton and goat were 17.2kg, 5.1kg and 3.14kg, respectively.
Breitenbach said the decline in chicken consumption was worsened by the permanent closure of many restaurants, which affected meat producers, who now have fewer companies to which they can send the meat. During the hard lockdown, sales at restaurants and takeaway outlets also declined, which further affected producers.
The two biggest chicken producers in the country, Astral Foods and RCL Foods, which houses Rainbow chicken, said their earnings had taken a knock. In a trading update on 16 March, Astral Foods said that it expects its earnings per share and headline earnings for the six months ending 31 March to be down by about 45% compared to the same period last year.
RCL foods commented more generally, saying its chicken division performance was negatively affected by challenges in agriculture, supply chain and additional storage costs associated with the Covid-19 pandemic.
Though the more prominent companies could shoulder the shocks, smaller companies were hammered. Sapa represents 860 farmers classed as small, medium and micro enterprises, and they communicate with 1000 cull traders.
Breitenbach said many of these businesses were forced to shut down during the hard lockdown because they could not sell their stock and didn’t have the capital to reopen.
“The grants by the government did help, but it did not stop the problem,” he added. The department of agriculture created a R1.2-billion fund to assist smallholder farmers with harvesting and planting, focusing on poultry, vegetables and other crops.
Local chicken producers and importers are also concerned about tariffs to protect the industry.
The Association of Meat Importers and Exporters (AMIE) told the Mail & Guardian that it wants tariffs to be reviewed and reduced to ease trade barriers. Paul Matthew, chief executive of AMIE, said this is because import figures have declined over the years.
He explained that domestic production accounts for 80% of overall consumption, and the rest must be imported to ensure there is enough product to supply overall consumption.
“The industry needs help, but not protection. We do not believe that imports are harming the local industry, and we do not believe that tariffs or anti-dumping duties are the way to solve the industry’s problems,” he said.
He said tariffs were massively inflationary, and as usual, it is the poor that suffer most from price increases brought on by increased tariffs.
The frozen bone-in chicken tariff was 18% in 2011, then increased to 37% and last year, it stood at 62%.
Clif Johnston, the South African National Consumer Union vice-chair, said the industry was still requesting higher tariffs, to as much as 80%.
“We don’t have access to the 2013 price data, but the latest price survey by the National Agricultural Marketing Council has shown that the recent increase from 37% to 62%, which was published on 13 March 2020, has resulted in a price increase of 14.6% between January 2020 and January 2021 for locally produced frozen bone-in chicken, which is more than four times the overall inflation rate over the same period.’’
Johnston cautioned that if the local producers don’t match the price of the imports, they will lose out on market share, and the percentage of imports will increase.
“Thus, even a small percentage of imports can provide a very real protection to consumers against rising prices, provided import tariffs are not increased,” he said.
However, Sapa argues that the market, not tariffs, determine chicken prices — and escalating input costs such as that of feed impact meat prices in South Africa as in the rest of the world.
“Tariffs only apply to unfairly traded imports — not all imports,” emphasised Breitenbach.
The Fairplay Movement, a nonprofit organisation that fights for jobs and works to end predatory trade practices between countries, said that tariffs had protected the local industry from unfair trade practices such as dumping. This occurs when unfairly priced chicken is imported at below the sales price in the producer country.
The Fairplay Movement’s Themba Hlengani said that dumped chicken imports have been hurting the local industry for the past two decades. He said this was not fair trade, and is prohibited by the World Trade Organisation, which allows the imposition of anti-dumping duties to counter unfair trade.
The primary sources of dumped chicken have been the EU and Brazil. But early this year, Sapa submitted an application to the International Trade Administration Commission (Itac) alleging that frozen bone-in portions originating in or imported from Brazil, Denmark, Ireland, Poland and Spain are being dumped on the Southern African Customs Union market.
Itac confirmed to the M&G that it started its investigations late in January.
Hlengani added that dumping has caused the local chicken industry to contract or at least prevented it from expanding, and thousands of jobs have been lost in the process.
He believes that fairly priced imports are not a threat because the local poultry industry is efficient and internationally competitive.
“The problem is unfairly priced dumped imports.”
In 2019, the South African government adopted a poultry master plan, with the goal to revive and grow the local poultry industry. One of its aims is to reduce imports by making sure that locally produced poultry is the most consumed sector in the country.
It also plans to grow the muscle of the local industry so that it can export its products to the Southern African Development Community and to countries that are part of the African Continental Free Trade Area. The government says it is additionally planning to increase the level of black business’ participation across the value chain.