Hard times continue for South Africa’s poultry industry

South Africa’s broiler production in 2013 is thought to have shrunk by 0.4 percent in comparison with 2012.

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High feed cost have reduced broiler margins and more recently resulted in product being produced at a loss.
High feed cost have reduced broiler margins and more recently resulted in product being produced at a loss.

South Africa’s broiler production in 2013 is thought to have shrunk by 0.4 percent in comparison with 2012, a slight improvement on the 0.6 percent contraction reported for that year.

Recently released data reveal that, despite this slight improvement in performance during 2013, the South African broiler industry continues to face significant pressures. Should there be any growth in sector, the earliest it will occur will be in the second half of 2014.

Diminishing profitability

The country’s Department of Agriculture, Forestry and Fisheries (DAFF), notes that, for 2013, the gross value of primary agricultural production from all poultry meats in 2013 stood at R32.9 billion (US$3.1 billion), an annual increase of 11.3 percent. But this figure fails to paint the whole picture.

The South African Poultry Association (SAPA)’s Broiler Committee says that 2013 was “a very eventful and extremely difficult period for the broiler industry.” 

Difficulties included the continuing high levels of imports, the application of tariff increases, an EU anti-dumping application, IQF injection marinating levels, and job losses. The sector also had to face price and volume pressures due to large increases in imports from Brazil and the EU, and extraordinary grain cost increases and consequent high feed prices.

Imports are an ongoing problem for local producers, despite the government imposing a new tariff on imports with effect from late September 2013. The Broiler Committee notes that although imports fell by 3 percent last year, they remain at very high levels.

For most of 2013, individually quick frozen products - key for the industry - were sold at a considerable loss due to downward price pressure from imports combined with above inflation increases for inputs. This resulted in poor profitability, layoffs, several smaller businesses ceasing to trade, and further consolidation among remaining producers.

Although the South African poultry industry experienced a particularly strong period of growth between 2005 and 2008, it has not continued. For example, last year, placement of day-old chicks contracted by 1.5 percent to stand at 993 million, while the number of birds grown and slaughtered during the year fell by 0.4 percent to 947 million. 

Impact of imports

Poultry products resulting from imports now account for 18 percent of the South African market, and the industry argues that this has taken pricing power away from local producers, who are no longer able to reflect production costs in their prices.

During 2013, the country imported 390,542 tons of poultry products. While this was 3 percent lower than 2012’s record import volume, it was still 12 percent higher than in 2011. Imports included fresh, frozen and processed product from across species, but imports of frozen product in particular, originating in Brazil and the EU, have had a particularly negative impact on the local industry.

Broiler meat, including mechanically deboned meat, accounted for 91 percent of the volume imported in 2013, with turkey meat accounting for approximately 9 percent and meat from other species 0.1 percent.

While imports of frozen broiler meat contracted by 4 percent last year to stand at 355,166 tons, the contraction came after a 14 percent increase in 2012 and a 36 percent increase in 2011. Mechanically deboned meat contributed 40 percent to frozen broiler meat imports, while bone-in portions accounted for 1 percent, carcasses 4 percent, boneless portions 4 percent and offal 10 percent.

Yet despite this slight decrease in volumes, the value of Free On Board imports in 2013 rose by 10 percent to stand at R3.9 billion.

Poultry exports

South Africa has a small export industry, accounting for 1.5 percent of total production, and exports grew by 80 percent last year to stand at 25,350 tons. 23,289 tons of chicken were exported with a Free On Board value of R345.5 million. Key export markets were Mozambique, Lesotho, Zimbabwe and Namibia.

The country’s disease status, however, keeps its product out of several important export markets, while many markets closer to home operate systems to protect and grow their own poultry industry.

Consumption

With per capita consumption of poultry meat standing at 35.69 kg last year, the country consumed a total of 1.9 million tons. Production on the home market stood at 1.7 million tons.

Per capita consumption of chicken meat  – including from subsistence farming and of depleted broiler and egg breeders – stood at 35.04 kg, with 1.671 million tons of the total 1.861 million tons produced coming from local production.

If brining is taken into account, per capita chicken consumption stood at 37.37 kg last year.

Little respite ahead

Given the pressure from imports faced by South African producers, SAPA has been engaging extensively with the local government, and a Poultry Development Plan is being drawn up by the Department of Trade of Industry. Yet margins are expected to remain suppressed this year as a result of continuing high input costs and high levels of imports.

A slowing economy, rising unemployment and reduced consumer spending, also are expected to take their toll on local production as is negative media coverage of injection brining. Growth prospects remain weak for the sector, which will have to look for efficiencies become more responsive to market conditions and manage volumes. 

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