Avian flu a last straw amid cheap imports
Outbreaks in key poultry provinces combine with plant closures and job layoffs to hammer the teetering sector
The outbreak of avian flu in SA could not have come at a worse time for the poultry industry, already struggling to survive in the face of cheap European imports.
So far there have been outbreaks of the highly pathogenic virus in five provinces — Mpumalanga, Gauteng, Western Cape, North West and KwaZulu-Natal — which have necessitated the culling of hundreds of thousands of birds.
This has come on top of the plant closures and job layoffs due to the import of cheap European bone-in chicken portions that has not been mitigated by the imposition in December of a 13.9% tariff increase. The International Trade Administration Commission has since been considering whether a further tariff hike is justified.
If SA cannot produce sufficient quantities of chicken, it will have to rely more on imports. Already, the country is the fifth-largest importer of chicken worldwide after Japan, Hong Kong, Mexico and China and was the world’s fourth-largest consumer of chicken per capita in 2016.
It is, therefore, an important export market for major chicken producers such as Brazil, the largest exporter with a 34% share of global chicken exports; the US (28.4%); and the EU (11.4%).
The coming into force of SA’s trade agreement with Europe in 2012 that allowed European chicken to enter the market duty-free has caused a sharp rise in European chicken imports at the expense of Brazilian and US products.
As SA has battled against the tide of European imports, Brazil and the US have worked together against what the president of the US Poultry and Egg Export Council, James Sumner, said was the "unfair trade restrictions" that SA has imposed on its chicken exports.
While Brazil and the US are the world’s largest chicken exporters, they do not compete in their major markets.
The US succeeded in using the Africa Growth and Opportunity Act as a lever in 2016 to get SA to remove anti-dumping duties on an annual quota of 65,000 tonnes of bone-in chicken imports.
Vice-president of the Brazilian Association of Animal Protein (Abpa) Ricardo Santin said at an Abpa conference in Sao Paulo last week that Brazil had been unable in the past to compete with European chicken. Chicken exports from Brazil to SA fell 2.4% in 2016 to 221,866 tonnes, compared with 2015’s 227,270 tonnes.
But in 2017, things have begun to change as there has been a sharp 31.5% rise, to 185,233 tonnes in Brazil’s exports to SA from January to July, compared with the matching period in 2016, a rise that could be related to the December tariff increase on European imports.
For long-term sustainability, South African producers will have to achieve greater economies of scale by ramping up production and exporting
Having plentiful land and water and benefiting from the increase in the production of maize and soya since the introduction of genetically modified crops, Brazil is hard to beat in terms of the competitiveness of its chicken. It produced 97.2-million tonnes of maize in 2016-17, of which Brazilians consumed 56-million tonnes, and 28-million tonnes were exported. As animal feed represents 65%-70% of the cost of chicken production, having low feed costs is a significant cost advantage for Brazil.
The country is also completely untouched by avian flu, being largely off the migratory paths of the wild birds that are its main cause.
A study of the competitiveness of South African broiler production by the Bureau for Food and Agricultural Policy (BFAP) in conjunction with the Landbouw Economisch Instituut at Wageningen University in the Netherlands found that South African producers achieved high levels of technical and economic efficiency in their poultry production. However, South African feed costs were €343 per tonne in 2013 compared with the average of €285 per tonne in surplus feed grain-producing countries such as the US and Brazil.
BFAP researchers Tracy Davids and Ferdi Meyer noted in an article in Oilseeds Focus magazine that since 2010, "more than half the growth in chicken consumption [in SA] has been supplied through imported products. From 2010 to 2015, imports increased by more than 90%, from 240,000 [tonnes] to 457,000 tonnes, raising concerns related to the industry’s ability to compete in the global context — and consequently, its long-term sustainability."
SA’s surplus maize crop in 2017 will ease the burden that high animal feed prices placed on the industry during the drought and that worsened its competitiveness against European rivals.
For long-term sustainability, South African producers will have to achieve greater economies of scale by ramping up production and exporting. To do so will require continued government support in restricting the influx of cheap imports.