SA government urged to protect poultry industry from collapse

poultry resizedThe SA poultry industry is in dire need of support from government in order to avoid collapsing as the threat of cheaper imported products adds more pressure to keep costs down. Further exacerbating matters is the prediction by economists that the rand will strengthen, making imports into the country even more affordable. According to Gareth Lloyd-Jones, MD of Ecowize, a hygiene and sanitation company servicing the food and health sector, incidences of chicken dumping in SA are likely to increase over the next few months as suppliers in struggling EU economies look for ways to dispose of surplus product. This will place severe pressure on the already struggling local industry.

‘The same oversupply issue will arise in countries that are currently exporting to the European market as the demand in Europe has dwindled significantly. Therefore, Brazilian and Thai poultry producers will also be looking to undercut other markets like South Africa,’ says Lloyd-Jones. He explains that when ‘dumping’ a product, the producer is simply looking to dispose of the product and recover input costs. ‘Therefore, poultry products that are dumped into the South African market can be sold at a much lower price than local products.’

SA has already seen instances of chicken dumping from countries such as Brazil which resulted in the local government imposing a provisional payment to combat dumping of products by enforcing a section of the Customs and Excise Act of 1964. However, this only covered deboned breast meat and Mechanically Deboned Meat (MDM) and no other poultry products.

‘More decisive action needs to be taken to curb poultry dumping, as retailers import masses of poultry products into the country.’ He refers to recent statistics released by the Southern African Poultry Association (SAPA), that show a 49.1 per cent increase in chicken imports and a 9.5 increase in mechanically deboned meat (MDM) or turkey, year-on-year from 2010 to 2011. Furthermore, for the last three months of 2011, SA imported 63 003 tonnes of chicken and 37 537 tonnes of MDM or turkey. In 2010, SA imported 240 182 tonnes of chicken meat at a value of R1.53 billion, making it the world’s 13th largest chicken meat importer. Brazil, Argentina, Canada and the EU are the predominant sources of imports.

‘The local market is already oversupplied with poultry products and this puts local producers under a lot of pressure. Furthermore, the rise of costs such as electricity and fuel makes it extremely difficult for local producers to keep costs low, in order to compete with cheaper imported products,’ comments Lloyd-Jones. ‘The Brazilian government subsidises up to 90 per cent of local producers’ maize as part of an employment creation programme. This subsidy enables them to produce at much lower costs than SA producers. Such a grant would be highly beneficial to local producers.’

Moreover, he says the price of chicken remains at the same level as in 2008, however the feed price, which currently represents 60 per cent of the chicken producer’s costs, has double in the same time.

‘Another major concern is that the safety of poultry products is likely to be exacerbated by the dumping. Often food gets diverted to continents whose products aren’t subject to the same import tariffs, to avoid import duties. This adds to the link in the elongated supply chain the food safety risk increases significantly and further to this, as more components are added it becomes more difficult to guarantee the hygiene and safety of the end product, which could potentially compromise the high levels of food safety in the local food production industry,’ he says.

Lloyd-Jones believes there are several possible interventions that the government should consider looking into to improve the situation for local producers. Directly, he says a blanket import duty could be placed on all products entering the market. Alternatively, a quota system can be introduced. ‘Another option would be to provide support to local producers by providing certain subsidies, for example water, maize and veterinary.’

Indirectly, he says that the government can impose stricter regulations in terms of licences and import legislation, thereby creating a bigger barrier to entry. ‘Regulation can also be introduced to stipulate a certain proportion of retail stock to be local produce,’ says Lloyd-Jones.