Brazilian chickens threaten SA poultry industry jobs

Much has been made in recent times about a growing disagreement between South Africa and Brazil around poultry imports – but this is merely a symptom of a much larger crisis facing our country.

This holds grave implications for the future sustainability of the South African poultry industry, the largest in the agricultural sector; for our country’s food security; for hundreds of thousands of direct and indirect jobs; and for the ability of the poultry industry to transform and nurture emergent producers.

The government has taken a step in the right direction in recently imposing provisional payments – a type of tariff – on deboned meat and whole frozen chickens imported from Brazil to prevent the wholesale dumping of these products on the South African market. There is compelling evidence that dumping of a range of products is taking place, and it is important to note that several exporting countries appear to be guilty of the practice.

But a lot more government support and protection will be required, sooner rather than later, to save the South African poultry industry from going the way of our textile and footwear industries, which were all but obliterated in recent years by cheap imports and not enough state support. If the playing field isn’t made fair, and very rapidly, the loser won’t only be the poultry industry: it will be every single one of us.

South Africa’s increased tariffs have prompted Brazil to lodge a complaint with the World Trade Organisation (WTO), claiming this is unfair and unwarranted, will actually result in job losses in South Africa and lead to higher chicken prices.

The SA Poultry Association, as the industry body, vigorously disputes these assertions. Let us look at the salient facts:

n South Africa’s poultry industry makes up about a quarter of the agricultural sector’s contribution to gross domestic product, and is the largest food category by far.

n The poultry industry employs more than 50 000 people directly, and at least another 55 000 indirectly.

n It uses about a third of the local maize crop and most of the soya beans, adding another 10 500 jobs.

n These jobs can be found throughout the value chain, from production to processing and distribution – unlike with imported poultry, where employment is only in distribution and very limited by comparison.

n Poultry is one of South Africa’s most important food security elements: it is the cheapest type of meat and accounts for more than 50 percent of the country’s sources of protein.

n Chicken is also the single biggest component of food retail, accounting for 10 percent to 15 percent of turnover.

n Production-wise, we are technically on a par with countries such as Brazil, but because of higher input costs such as feed as well as economies of scale, it is difficult to compete on price.

n Feed makes up between 65 percent and 75 percent of production costs, which means that fluctuations in the maize price particularly have an enormous impact on the poultry industry’s viability.

n In 2011, imports made up approximately 20 percent of South Africa’s poultry consumption; this makes imports the largest single supplier of poultry to the South African market.

n Poultry imports have spiked dramatically. Last year we recorded a 40 percent year-on-year increase in imported chicken, and it continues to rise. Where previously we imported between 10 000 and 25 000 tons a month, it is now between 29 000 and 35 000 tons a month.

n This dramatic increase is predicated on two factors: the global recession, which has led to consumers worldwide eating less chicken, and traditional big importers such as China and Russia are building their own poultry production capacity.

n This has led to dumping by various exporting countries of less desirable poultry cuts, such as the dark-meat leg portions, on the African market, where there is more appetite for them than in other regions, which prefer white-meat cuts such as the breast.

n Reduced demand from consumers, together with a surge in imports, has resulted in a situation where our country’s cold storage capacity is full; we have basically run out of space to store poultry products (as well as other types of meat), and have a glut of chicken in the marketplace.

The decision of South Africa’s International Trade Administration Commission (Itac) to implement provisional payments on the two types of chicken product was taken after intervention by the SA Poultry Association, which I represent.

With clear and compelling evidence of dumping presented to the commission, the rationale behind its decision is to level the playing field, and allow the domestic poultry industry to be competitive in a fair trading environment.

In its objection to the WTO, Brazil claims that the Itac decision is a manifestation of the South African government’s desire to make good on its promise to create jobs and that it will ultimately have the opposite effect and cause job losses.

I contend that this is a wholly incorrect assertion. It is abundantly clear that the opposite would be true: if the government does not step in and ensure fair trade, South African producers cannot but be hurt – and that will result in businesses shutting down throughout the value chain. Smaller producers, among them emergent farmers, will be most affected.

The Brazilian complaint also alleges that chicken prices will rise if cheaper imports are discouraged, and the poor will suffer the most. There is no doubt that we will see a rise in prices initially, but they will drop again once the situation settles down and market forces, especially at the fiercely competitive retail level, come into play. I would also argue that poorer South Africans will not be able to buy chicken if they do not have jobs.

Additionally, if the poultry industry did fail and we were forced to rely solely on imported chicken, we would not end up with a cheaper product. It’s virtually a given that imported chicken prices, in a non-competitive environment, will go one way: up. So that means for any kind of consistently reasonable retail pricing for chicken, we need a viable local poultry industry. There is always a place for imported chicken, but the most important factor is that competition takes place fairly.

The matter before the WTO will take some time to resolve. Meanwhile, the local poultry industry is caught in a much larger crisis that cannot wait, and it is looking to the government to take steps that will be the difference between a viable and sustainable industry and a situation where tens of thousands are out of work and the country must rely on imports for one of its most critical food sources.

Imports of a product we are perfectly able to produce add a few billion rand to our current account deficit. Imagine if we went belly up, and the country had to find another R25 billion worth of foreign exchange so that South Africans can eat.

To this end, it is imperative that the government and the poultry industry partner for growth as soon as possible. At present, there is too little direct engagement between the parties and we lack a forum in which to tackle the longer-term challenges.

So while the current situation is certainly dire, we should see it also as a golden opportunity to ensure a better legacy for us all. If that happens, we take a huge stride forward in ensuring not only job retention but also job creation, food on the table for more people, and the preservation of our most important agricultural sector.

Kevin Lovell is the chief executive of the SA Poultry Association.