Chicken prices likely to fly high for some time - SA Poultry Association

By Georgina Crouth

5 Mar 2023

The SA Poultry Association says producers are under pressure and cannot foot the bill for consumers any longer.

Poultry producers need to look beyond South Africa’s borders to offset economic pressures at home, where domestic consumers are under increasing strain, says the SA Poultry Association (Sapa). That’s because power outages have increased the cost of producing birds, and the industry has done all it can to mitigate against the consequences. So, consumers must expect to pay more for poultry products.

Central to food security in SA, poultry producers have been forced to absorb the cost of doing business in SA, where rolling blackouts have had a material impact on their bottom line. The association has now called for the scrapping of VAT on chicken as well as chicken feed, to provide relief for farmers and SA’s most vulnerable consumers.

More than 50,000 people are directly employed by the country’s second-largest agricultural subsector (after maize), with many more employed along the value chain. Its contribution to food security centres on its ability to provide an affordable source of protein to South African consumers; in 2021, chicken accounted for 66% of the country’s total meat consumption.

At the State of the South African Poultry Industry media roundtable, the association said the sector was bedevilled by troubles in 2022: the war in Europe, which caused a steep rise in feed and input costs; the suspension by the Department of Trade, Industry and Competition of the implementation of anti-dumping duties – despite being warned by the International Trade Administration Commission that doing so would cause material harm to the industry; and avian influenza outbreaks.

South African producers weren’t slaughtering fast enough either, owing to rolling blackouts, which have added significant pressure to producers’ bottom line because of extra feed costs. Older birds, while they are still growing, do so at a slower rate, which exacerbates the feed conversion cost.

On the upside, despite the collapse of state infrastructure and unfair competition from countries dumping product into our markets, the poultry sector says it has accelerated growth “exponentially” over the past three years.

The domestic poultry industry is today worth R59-billion.

Sapa’s Poultry Sector Master Plan called for an investment of R1.5-billion to be concluded by 2022, but the sector has already surpassed that call, with an investment of R1.8-billion last year and an extra R600-million earmarked for investment by the end of 2024.

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The master plan comprises three “pillars”:

The first focuses on expanding and improving production (from 19.7 million birds per week to 22.5 million birds per week); job creation; training farmers in biosecurity risks; supporting emerging farmers; and increasing the level of black ownership.

Between 2019 and 2022, the industry helped finance R466-million to assist emerging black contract growers’ cashflow. By the end of this year, that will increase to R474-million.

The industry has also established 21 new contract growers (costing about R35-million each) with the goal of helping set up a total of 50 contract growers by the end of 2024.

The second pillar is aimed at driving domestic demand and improving affordability. From Q3 2021 to Q2 2022, chicken giblets, whole fresh chickens and non-IQF (individual quick freezing) frozen chicken portions went up in price by 9%, 6% and 2%, respectively, while the cost of IQF chicken portions went down by 1%.

The third pillar of the master plan, which is fundamental to the sector’s survival, is to drive exports. SA is yet to be certified to export to the EU; the process, which is under way, can take up to 24 months.

Izaak Breitenbach, general manager of Sapa, said that before 2019, the local industry was stagnant, hampered by imports dumped into South Africa. “What we are now seeing is an industry that has increased its gross value from R47-billion to R59-billion in a matter of three years. That’s a 25% increase in gross value. This is a growing industry.”

But the headwinds have been significant. Since 2020, the industry has endured Covid; a highly pathogenic avian influenza that forced producers to cull 3 million breeding birds; record high prices for raw materials; a material increase in imports after the suspension of the anti-dumping duty against Brazil, Denmark, Ireland, Poland and Spain; and rolling blackouts.

“We see an industry in distress, an industry that’s losing money. [There are] record high raw-material prices and chicken prices are high. Consumer demand at present is down due to the high prices of chicken and cold storage as storage facilities are full of chicken,” Breitenbach said.

The sector has taken action to stimulate growth and offset the impediments, he said, starting with implementing the master plan. “We have invested R1.8-billion to date in expanding capacity, which will expand to R2.4-billion by the end of 2023. Our slaughter capacity has increased from 19.7 million birds a week to 22.5 million birds per week.”

South Africa is already exporting to all neighbouring countries and the UAE but wants to prioritise the EU and Saudi Arabia as future export markets. Breitenbach said they were applying for export accreditation for the EU and awaiting an inspection visit from Saudi authorities with the aim of exporting to that country.

Bird flu was becoming endemic globally; last month, for example, 58 million birds were culled in the US owing to outbreaks of avian influenza in chicken flocks. Europe is in the midst of its worst spate of bird flu infections, with 2,500 outbreaks on farms in 37 countries between October 2021–September 2022. About 50 million birds have already been culled across the continent – mostly in France.

Now, the disease has spread to South America. Brazil is the only country in South America that has not yet had a bird flu outbreak. Argentina has had its first outbreak of bird flu, and that will stop exports to South Africa.

The biggest drivers of prices in the industry are the cost of feed, which has risen sharply in recent years, and rolling blackouts. The industry has asked for exemptions from certain stages of blackouts, but former Eskom CEO André de Ruyter has said it is practically impossible for the utility to exempt certain sectors from rolling blackouts because they are embedded within distribution networks.

Small producers and emerging farmers, Breitenbach said, did not have the resources to instal solar solutions to power their farms, and were in desperate need of some relief to remain viable business concerns.

For years, local producers have had little choice but to absorb escalating costs to remain competitive and mitigate the impact on the consumer but say they cannot continue to do so. Global feed product prices have risen sharply in recent years, intensified by the Covid pandemic and the war in Ukraine, which has caused a sharp rise in energy, fertiliser and agricultural commodity prices. BM/DM

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