FOOD: Poultry Sector Asks For Protection
Recent Western Cape Business News
The poultry industry is in dire need of support from the government in order to avoid a collapse of the industry, as the effects of the Eurozone financial crisis take hold and the threat of cheaper products being opportunistically imported or dumped in the South African market adds more pressure to keep costs down. Further exacerbating matters, is the prediction by economists that the rand will strengthen, making imports into the country even more affordable.
This is according to Gareth Lloyd-Jones, MD of Ecowize - a leading hygiene and sanitation company servicing the food and health sector - who says incidences of chicken dumping in South Africa are likely to increase over the next few months as suppliers in struggling EU economies look for ways to dispose of surplus product. This will place severe pressure on the already struggling local industry.
“The same oversupply issue will arise in countries that are currently exporting to the European market as the demand in Europe has dwindled significantly. Therefore, Brazilian and Thai poultry producers will also be looking to undercut other markets like South Africa,” says Lloyd-Jones.
Lloyd-Jones explains that when ‘dumping’ a product, the producer is simply looking to dispose of the product and recover input costs. “Therefore, poultry products that are dumped into the South African market can be sold at a much lower price than local products.”
According to Lloyd-Jones, South Africa has already seen instances of chicken dumping from countries such as Brazil which resulted in the local government imposing a provisional payment to combat dumping of products by enforcing a section of the Customs and Excise Act of 1964. However, this only covered deboned breast meat and Mechanically Deboned Meat (MDM) and no other poultry products.
“More decisive action needs to be taken to curb poultry dumping, as retailers import masses of poultry products into the country.” He refers to recent statistics released by the Southern African Poultry Association (SAPA), that show a 49.1% increase in chicken imports and a 9.5% increase in mechanically deboned meat (MDM) or turkey, year-on-year from 2010 to 2011. Furthermore, for the last three months of 2011, South Africa imported 63 003t of chicken and 37 537t of MDM or turkey. In 2010, SA imported 240 182t of chicken meat at a value of R1.53 billion, making it the world’s 13th largest chicken meat importer. Brazil, Argentina, Canada and the EU are the predominant sources of imports.
“The local market is already oversupplied with poultry products and this puts local producers under a lot of pressure. Furthermore, the rise of costs such as electricity and fuel makes it extremely difficult for local producers to keep costs low, in order to compete with cheaper imported products.
“The Brazilian government subsidises up to 90% of local producers’ maize as part of an employment creation programme. This subsidy enables them to produce at much lower costs than South African producers. Such a grant would be highly beneficial to local producers.”
Moreover, he says the price of chicken remains at the same level as in 2008, however the feed price, which currently represents 60% of the chicken producer’s costs, has double in the same time. “It’s not sustainable for an industry to keep absorbing these costs and many small and medium operations will not be able to continue doing business if this continues.
“Another major concern is that the safety of poultry products is likely to be exacerbated by the dumping. Often food gets diverted to continents whose products are not subject to the same import tariffs, to avoid import duties. This adds to the link in the elongated supply chain the food safety risk increases significantly and further to this, as more components are added it becomes more difficult to guarantee the hygiene and safety of the end product, which could potentially compromise the high levels of food safety in the local food production industry.”
According to Lloyd-Jones, also at jeopardy is the employment of thousands within the poultry industry. He refers to a study conducted in Zimbabwe by Evengelista Mudzonga, produced under the Southern African Development Research Network (SADRN) project: “Trade and Poverty”, whereby the impact on imported chicken on the local chicken industry was assessed. “The study found that despite the low costs benefiting consumers and retailers, even more significant was the negative impact on employment in the country.
“These findings indicate that South Africa is heading into a situation, similar to that of the collapse of the South African clothing and textile industry. In 2003, the number of employed stood at 70 000 and by 2006 the figure decreased to 50 000. Currently, South Africa’s poultry industry employs well over 30 000 people and this amount will most likely drop should nothing been done to control dumping.”
Lloyd-Jones says there are several possible interventions that the government should consider looking into to improve the situation for local producers. Directly, he says a blanket import duty could be placed on all products entering the market. Alternatively, a quota system can be introduced. “Another option would be to provide support to local producers by providing certain subsidies, for example water, maize and veterinary.”
Indirectly, he says that the government can impose stricter regulations in terms of licences and import legislation, thereby creating a bigger barrier to entry. ”Regulation can also be introduced to stipulate a certain proportion of retail stock to be local produce,” says Lloyd-Jones.
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