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Astral’s latest results were excellent, with headline earnings per share rising 138% on revenues driven by higher selling prices and broiler sales volumes (“Astral doubles dividend as improved volumes give it wings”, May 16). Astral is one of the largest poultry production companies in SA.
It’s clear that the National Poultry Master Plan is working for the big local producers and their shareholders. But it’s clearly not working for the other signatories to the plan or for small-scale farmers, who would love to make even a fraction of the profit made by companies such as Astral.
Most concerning, however, is that the master plan isn’t working for consumers, who continue to see monthly price increases. The price of chicken increased by 17% between January 2021 and January 2022, so one must ask: are Astral’s shareholders smiling at the expense of weary, financially stricken consumers?
During the master plan negotiations the large domestic producers gave an undertaking to trade, industry & competition minister Ebrahim Patel that they wouldn’t increase prices for the consumer. In return, the government committed to curbing imports, largely by introducing further protections for local industry, notably an increase in import tariffs.
Today, chicken imports — excluding mechanically deboned meat, which SA doesn’t produce but which is critical for producing processed meat products — are down to 9.4% (based on SA Revenue Service figures), but even at this low level imports play a critical role in providing the competition required to keep prices in check for consumers.
Without imports large local producers are able to consolidate the market and set the price. Indeed, local producers already control the value chain, including feed, day-old chicks and market access. If they are able to squeeze out what is left of imports they will control the entire value chain, which is in nobody’s best interest, especially consumers.
According to trade economist Donald MacKay of XA International Trade Advisors, when tariffs (essentially another tax) are applied to chicken products, what naturally follows is that local producers increase their pricing to meet the raised import price. Local producers know that if they control the implementation of the master plan, raising tariffs and driving down imports, they can raise their own prices and deliver greater shareholder value. However, that isn’t good for the country, consumers and small-scale farmers.
For that reason the Association of Meat Importers & Exporters has called for the removal of existing tariffs, a moratorium on any new import tariffs and for chicken to be VAT-exempt. This intervention alone will help curb food inflation — just removing tariffs could bring down the cost of chicken by 33%, which is definitely in the customer’s best interest.
The Poultry Master Plan was designed as an intervention to benefit all stakeholders, but its impact seems to have resulted in consumers paying more for chicken at the till.
CEO, SA Association of Meat Importers & Exporters
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.