The impact of Poultry imports on
South Africa’s poultry industry
Tatenda Zengeni
Economic Research Advisory Network 2nd Annual
Conference
08-11 March 2017, Bloemfontein
www.competition.org.za
Outline
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Introduction
Arguments in favor and against free trade
Performance of SA poultry industry
Competitiveness and impact of poultry imports
Conclusion
Recommendations
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Introduction
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Poultry is important since it is the second cheapest source of protein for
South African consumers after eggs.
Chicken consumption in SA has increased by 74% (abt 200k tons) between
2001 and 2012, but of these increased volumes, only 35% was from local
production and imports accounted for 65% (BFAP, 2015).
Recently, the industry attracted attention due to rising imports and the
impending closure of some poultry facilities being announced by Rainbow,
the largest poultry producing company in South Africa.
Given this context, the poultry sector’s ability to compete with imports and
its long- term sustainability have recently been questioned.
Presentation assesses the impact of poultry imports on the performance of
the South African poultry industry and South Africa’s competitiveness in
poultry production in comparison with the key sources of imports (Brazil and
Europe).
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Arguments in favour and against free trade
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Theoretical literature that discusses the benefits of free trade centre its
argument on the comparative advantage theory and the HO trade theory
Static gains arise as the misallocation of resources under import protection
is corrected and resources are shifted from inefficient producers to efficient
producers. Benefits from free trade come in the form of increased welfare.
Dynamic gains- Relates to the positive effect of trade on economic growth
e.g specialising in producing products on which the country has CA leads to
high production and growth.
Arguments against free trade is often based on the need to protect infant
industries(F List). CA theory is only concerned with static efficiency in the
allocation of resources and is not conducive for long term development
All countries pass through five stages of economic development.
Industry protection is required because countries are usually at different
levels of development. Countries in the agricultural stage will require
protection from countries that have reached stage four and five.
Protection must be temporary and must be accompanied by policies to
make industry more efficient
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Performance of SA poultry industry
Broiler meat production and consumption (in thousand metric tons)
Year
Production
Consumption
Estimated production
deficit
Actual imports
2004
928
1082
-154
2005
1019
1204
-185
2006
1143
1383
-240
260
2007
1200
1470
-270
238
2008
1276
1508
-232
191
2009
1358
1558
-200
206
2010
1430
1645
-215
240
2011
1478
1753
-275
325
2012
1499
1836
-337
371
2013
1529
1899
-370
355
2014
1711
2023
-312
369
2015
1792
2127
-335
457
• Brazil is the main source of chicken imports since 2004, Netherlands
is the second source.
• Imposition of antidumping duties in 2013 against Brazil imports led
to a switch to Netherlands, UK, Spain and Belgium.
• USA was the 6th largest exporter to SA in 2016 after an agreement
on AGOA
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Competitiveness and impact of poultry imports
• Competitiveness of the poultry sector depends on the co-ordination
of production, investment through the various levels of the value
chain, economies of scale and the ability to acquire the key raw
materials at a reasonable price
• Feed and breeding stock are the two key inputs into broiler
production
• Poultry feed is generally made from milled maize (as a source of
energy) and soybean or sunflower (as a source of protein)
• Maize accounts for the largest share of inputs into feed production
by volume and value and accounts for approximately 60% of
production costs and Soybean account for 25 to 30% of animal feed
production cost
• Getting maize and soy at a competitive price is one step in achieving
competitiveness
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Competitiveness
Maize prices per ton US$ & Soy prices per ton US$
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Cost comparison
• Costs of primary production in US$ per kg of live weight (2013)
Netherlands
United Kingdom
Brazil
South Africa
0.19
0.23
0.14
0.21
0.84
0.92
0.66
0.89
0.11
0.10
0.04
0.13*
0.06
0.04
0.04
0.07
0.09
0.05
0.01
0.01
0.01
0.01
0.00
0.00
1.3
1.4
0.9
Day Old Chick
Feed
Other variable cost
Labour
Housing
General
Manure disposal
1.23
Total
• Brazil is more competitive than SA with lower prices for both feed
and day old chicks
• SA was more competitive than UK on both feed and day old chicks
• SA’s lack of competitiveness in feed is also reflected by a high feed
conversion ratio of 1.67 compared to Brazil (1.24), Netherlands
(1.37)
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Impact of poultry imports-Production
Relationship between imports and production
• A general negative relationship exists between imports and domestic
production.
• The growth in imports fell in 2013 after the introduction of antidumping duties against Brazilian chicken imports. Low levels of
production in 2015 may have been related to an increase in imports
from Europe
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Impact of poultry imports-Profit margins
Relationship between imports and prices
• A a general negative relationship exists between imports and
operating margins of poultry companies.
• Imports appear to exert a downward pressure on the margins of local
companies
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Impact of poultry imports-employment
• Mike’s Chicken closed in July 2016 as a result of its inability to
compete in the market. Its closure resulted in over 600 people being
laid off.
• RCL, the biggest producer also announced its intention selling
fifteen of its twenty five farms.
• The sale of 15 farms will result in 1000 workers being laid off.
• Some poultry farmers that are being affected with growing imports
are contemplating converting their chicken houses to suit egg
production (Astral, 2016)
• All these companies are citing their failure to compete with imports
as the main reason for closing.
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Conclusion
• Poultry sector is one of the key sectors in South Africa as it provides
the second cheapest source of protein.
• The domestic industry has experienced growth in production over
the years, however production growth failed to match growth in
consumption, leading to increase in imports.
• SA usually experience bumper harvest of maize, in terms of soya
production, SA rely on imports since it cannot produce enough.
• The assessment of the impact of imports on the local industry has
shown that chicken imports likely exert downward pressure on
prices and production.
• The switch from one import source after protection has shown two
things. First, that domestic producers are uncompetitive to deep sea
imports regardless of their source.
• Second, if protection is granted without considering the first point it
does not have a huge effect on the local industry as importers switch
to cheap sources, thereby defeating the purpose of protection.
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Recommendations
• Increasing tariffs is not the only solution. Once protection is granted
against imports from one country importers switch to another
cheaper source thereby defeating the purpose of protection.
• A longer-term solution for improved competitiveness requires that
government look towards increased production of maize and soya.
• Achieving increased production of maize can be done domestically
but it will be difficult for soya.
• Therefore there is need for a shift from a narrow focus on national
food sovereignty to a focus on competitiveness of food production
across Southern Africa and that requires government to take a
regional value chain approach incorporating countries such as
Zambia and Mozambique.
• For the regional focus to work there is need for investment in
transport and logistics to enable smooth trade among the players.
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Thank you!!
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