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South Africa - Poultry and Products Report 2011

by 5m Editor
28 October 2011, at 12:00am

Total broiler production for 2010 amounted to 969 million broilers or 1.3 million tons of meat, four per cent more than the 931 million broilers or 1.25 million tons of meat produced in 2009, according to the latest GAIN report from USDA Foreign Agricultural Service. In 2011, broiler production is expected to reach 980 million broilers or 1.315 million tons of meat, representing a one per cent increase from 2010.

Executive Summary

The South African poultry meat industry, with a gross value of more than 23 billion rand (ZAR; US$3.2 billion), is the country’s largest individual agricultural industry and contributes almost 18 per cent to agriculture’s Gross Domestic Product. Since 2000, broiler production in South Africa has grown by an average of four per cent per annum. The broiler industry on average produced 18.6 million broilers per week in 2010. This was four per cent more than the 17.8 million broilers per week produced in 2009. Total broiler production for 2010 amounted to 969 million broilers or 1.3 million tons of meat. In 2011, growth is expected to slow to a 1.1 per cent increase in broiler production on the back of high feed prices and a relative strong rand which supports imports. Average weekly broiler production is expected to increase to 18.7 million, while total birds slaughtered in 2011 are expected to reach 980 million broilers or 1.315 million tons of meat.

In 2010, broiler meat demand increased by almost four per cent, in line with positive economic growth in South Africa. The South African per-capita consumption of broiler meat in 2010 was 32kg. FAS expects that broiler meat demand will increase by about five per cent in 2011 as the South African economy is expected to show steady growth.

Broiler meat imports into South Africa are primarily exchange rate driven. Broiler meat imports increased in 2010 by 17 per cent to reach 240,182 tons or US$210 million. Imports of broiler meat accelerated in 2010 with a 15 per cent increase in the value of the Rand to an average of ZAR7.32 to the US$ compared to the ZAR8.43 in 2009. The strong Rand is continuing through 2011 and broiler meat imports are expected to reach almost 300,000 tons in 2011 or 20 per cent of local production.

Brazil is the leading supplier of broiler meat to South Africa, having more than 74 per cent of the import market. However, the South African poultry industry requested that anti-dumping duties against Brazil be introduced. The International Trade Administration Commission (ITAC) agreed to investigate the imports of Brazilian whole birds and boneless cuts. The preliminary findings will likely be issued in the first few months of 2012 by ITAC. The South African Poultry Industry remains confident that anti-dumping actions against Brazil will be introduced. The current five-year anti-dumping duty on chicken meat portions imported from the United States expires in November 2011, but as a Sunset Review has been initiated and the protections will continue until such time as the Sunset Review is complete.

US$1 = ZAR7.40 (on 15 September 2011)

Production

The South African poultry meat industry, with a gross value of more than ZAR23 billion (US$3 billion), is the country’s largest individual agricultural industry and is contributing almost 18 per cent to Agriculture’s Gross Domestic Product. Broiler production makes up most of the poultry industry. Although South Africa produces less than 1.5 per cent of the world’s broiler meat it is the major broiler producer, with almost 80 per cent of total broiler production, in the Southern African Development Community (SADC). Since 2000, broiler production in South Africa has grown by an average of four per cent per annum. However, in 2009, the growth rate slowed to less than one per cent as a result of high commodity prices, which resulted in high feed prices, and was followed by the worldwide economic recession, characterised by high inflation and interest rates, a slow-down in consumer demand and job losses. Fortunately, the South African economy recovered in 2010 from the recession and domestic demand for poultry products increased again. As a result the productions of broilers meat increased by four per cent in 2010.

On average, the broiler industry produced 18.6 million broilers per week in 2010. This was 716,000 broilers per week or four per cent more than the 17.8 million broilers produced in 2009. Total broiler production for 2010 amounted to 969 million broilers or 1.3 million tons of meat. Total broiler production in 2010 was four per cent more than the 931 million broilers or 1.25 million tons of meat produced in 2009.

In 2011, only a 1.1 per cent increase in broiler production is foreseen as feed prices remain high and the relative strong rand/dollar exchange rate which support imports. The average weekly broiler production is expected to increase to 18.7 million, while total birds slaughtered in 2011 is expected to reach 980 million broilers or 1.315 million tons of meat.

Structure

The broiler industry in South Africa is dominated by two large producers, namely Rainbow and Astral. Together, these two companies produce 46 per cent of total broiler production in South Africa. Rainbow, on average, produces 4.4 million broilers per week and Astral, on average, 4.0 million broilers per week. The third largest producer, Country Bird, produces 1.3 million broilers per week or seven per cent of total broiler production in South Africa. Country Bird is followed by four medium-sized producers – producing more than 800,000 broilers per week – that supply 20 per cent of the market. These seven companies provide 73 per cent of the broilers, while hundreds of smaller producers supply the balance. A degree of consolidation has taken place in recent years, with bigger players buying up some of the smaller producers.

Feed cost

Feed cost is one of the major cost factors in the broiler industry. The broiler industry suffered dramatic feed price increases in 2008 (from ZAR2,648 per ton to ZAR3,502 or a 32 per cent increase), due to the significant increase in the prices of corn and soybeans, the main raw materials in broiler feed. In 2009, feed prices decreased to an average price of ZAR3,326 per ton but were still significantly higher than historical levels.

The increases in feed cost prices were not recovered by sales realisation, putting the profit margin of companies in the broiler industry under severe pressure. However, with the second largest corn crop ever recorded in South Africa and a record soya bean crop, the average broiler feed price decreased in 2010 to ZAR3,000 per ton. This represented a decrease of 10 per cent compared to 2009.

Corn is the major ingredient (more than 50 per cent) in broiler feed and any change in the price of corn directly impacts the profit margin of broiler producers. The poultry industry consumes approximately 2.8 million tons of corn – mainly yellow corn – or 30 per cent of total corn consumption in South Africa on an annual basis. Another important product in the 3.96 million tons of feed (72 per cent of all feed manufactured in South Africa annually) consumed by the poultry industry is soybean meal, which is mainly imported from Argentina.

Animal health and diseases

The broiler industry in South Africa has become largely resilient in disease situations. The past few years have seen a strong emphasis on precautionary measures, disease surveillance and control in the South African broiler industry. The aim is to reduce the incidence of animal disease and minimise the impact of outbreaks when they do occur. The South African poultry industry also funded a long-term disease-reduction programme, which is in the final planning and approval stages and should be rolled out during the next three years.

The spread of avian influenza elsewhere in the world is still of great concern for South African poultry producers and they remain on high alert, as the threat of avian influenza also has the potential to reduce consumer demand. A routine surveillance programme for Notifiable Avian Influenza using a protocol in line with OIE guidelines has been in place since 2005. According to the protocol, all commercial ostriches and chickens as well as non-commercial chickens are sampled and tested on a six-monthly basis for both the H5 and H7 avian influenza virus subtypes. The April 2011 outbreak of highly pathogenic avian influenza in ostriches in the Southern Cape was successfully eradicated with the slaughtering of thousands of ostriches. However, no detections have occurred in broiler production.

Newcastle disease remains virulent for the fourth year of constant occurrences. The spread of Newcastle disease can be largely attributed to a lack of biosecurity and is linked to the commercial egg-layer industry, where the disease has been far more catastrophic.

Production efficiency

Improved animal husbandry, stricter disease control, and production efficiencies have contributed to lower chicken mortality rates in the industry over the past three to four years. Foreign as well as local authorities ensure high sanitary standards in the South African poultry production industry. Local broiler producers also rely exclusively on the best internationally developed strains from the United Kingdom, the United States and the Netherlands.

Consumption

The growing demand (in the region of six per cent per annum) for broiler meat that enjoyed from 2000 to 2008, did not continue through to 2009. As already mentioned, high interest and inflation rates impacted negatively on consumers’ spending ability. However, in 2010, broiler meat demand increased again by almost four per cent on the back of the recovery in the economy and the fact that broiler meat remains one of the most affordable protein source relative to other meat protein sources in South Africa.

South Africans' per-capita consumption of broiler meat in 2010 was 32kg. In comparison, each South African consumed only 3.2kg of mutton, 4.6kg of pork, and 17.7kg of beef in 2010. The trends in total per-capita consumption of meat in South Africa are illustrated in the table below. South Africans now eat more than double as much broiler meat as in the 1993.

Except for supplying the market with a protein source at a competitive price, the rise in broiler meat consumption the past few years can also be attributed to the industry’s response to the needs of consumers and food services operators for value-added, brand name and convenience products.

Post expects that broiler meat demand will increase by about five per cent in 2011 as the South African economy is expected to grow by more than three per cent. Economic growth is the main driver for increased broiler meat demand as rising living standards lead to increased consumption of affordable protein. Furthermore, future opportunities for growth in the broiler meat market exist as South Africa’s per capita consumption of broiler meat is still relative low compared with other economies in the world. For example, the United States per-capita consumption of chicken was 43kg in 2010.

Trade

Imports

Broiler meat imports into South Africa are primarily exchange rate-driven. When the Rand appreciates against the US dollar, imports of broiler meat increase as meat imports become cheaper. When the Rand depreciates against the US dollar, imports of broiler meat decreases.

Annual poultry imports for 2010 were 265,791 tons, which is 15 per cent more than 231,303 tons poultry meat imported in 2009. Broiler meat accounts for 91 per cent of all poultry imports, the balance largely being turkey products. Broiler meat imports increased in 2010 by 17 per cent to reach 240,182 tons or US$210 million. The 2010 increase in imports was driven by a 15 per cent increase in the value of the Rand to an average of ZAR7.32 to the US$ compared to the ZAR8.43 in 2009. The strong Rand continued into 2011 and broiler meat imports until July 2011 at 181,554 tons, which is 30 per cent higher than the same period in 2010. Broiler meat imports are expected to reach almost 300,000 tons in 2011 or 20 per cent of local production.

Brazil is the leading supplier of broiler meat to South Africa, having more than 74 per cent (178,191 tons) of the import market. Brazil is followed by Argentina, with 11 per cent (27,340 tons), Canada with 6 per cent (14,737 tons) and the United Kingdom with three per cent (6,318 tons) of the import market. Broiler meat imports from the US in 2010 reached 3,278 tons or just more than one per cent of total imports.

In volume, ‘mechanically deboned meat’ represents the largest category of broiler meat imports, namely 42 per cent or 101,328 tons. In value, imports of ‘mechanically deboned meat’ were worth US$43 million in 2010 or 20 per cent of the total value of broiler meat imports.

The second largest category in volume of broiler meet imports consisted of ‘frozen bone-in portions’, which represent 32 per cent or 76,852 tons of broiler meat imports at a value of US$92 million. In value, imports of ‘frozen bone-in portions’ represent 44 per cent of total broiler meat imports. Leg quarters are bone-in portions and falls under this heading.

‘Frozen boneless portions’ constituted 21 per cent or US$44 million to the value of total broiler meet imports in 2010. By volume, it represents nine per cent of total broiler meat imports. The other categories ‘whole frozen chicken’ and ‘frozen offal’ represents nine per cent and eight per cent to the total volume of broiler meat imports, respectively, but are relatively small in value with a combined value of about US$30 million.

Exports

South Africa exported 16,446 tons of broiler meat in 2010, 30 per cent more than the 12,651 tons exported in 2009. The value of these exports was US$36 million. In 2010, Zimbabwe was South Africa’s major export market with 11,045 tons, representing almost 70 per cent of exports. Zimbabwe was followed by Mozambique with almost 24 per cent or 3,862 tons of exports. So far this year, South Africa’s exports of broiler meat dropped by almost 40 per cent as Zimbabwe introduced import restriction, due to the recent outbreak of highly pathogenic avian influenza in ostriches in the Western Cape. It is, however, expected that exports will still reach 10,000 tons in 2011.

Anti-dumping duties

An anti-dumping duty against the United States for poultry products in tariff number 0207 14 90 (bone in cuts, include the chicken leg quarters) was instituted in 2000 for five years, reducing imports from the US from more than 31,000 tons in 1999 to only 344kg in 2005. Anti-dumping tariffs, ranging from ZAR2.24 per kg to ZAR6.96 per kg are currently imposed in addition to an import duty of ZAR2.20, effectively pricing US chicken pieces out of the local market. The anti-dumping duty on product from Tyson Foods is ZAR2.24 per kg, from Gold Kist Inc., it is ZAR2.45 per kg and ZAR6.96 per kg from any other United States producers. US poultry exporters applied to have the anti-dumping ruling reviewed in 2005 but the South African poultry industry opposed the application and the anti-dumping duty was extended to 2011. However, in 2007, the South African Supreme Court of Appeal found that International Trade Administration Commission (ITAC) had improperly calculated the timetable for doing an anti-dumping sunset reviews under South African law for a separate case. However, the ruling is applicable on more than 70 products, including United States poultry. This meant that anti-dumping duties on ‘bone in chicken portions’ from the US can be declared unlawful due to the legal sunset review not being performed at the right time.

ITAC has launched an application to address the consequences of the ruling, which would determine whether the ruling should extend to other industries and request for the continuing of anti-dumping duties called into question after the Supreme Court of Appeal opinion in 2007. The case was heard at the end of April 2011. The parties involved were the South African government, the Southern Africa Poultry Association, the Association of Meat Importers and Exporters (AMIE) and a retailer, Shoprite Checkers. No decision has been made by the court yet. It is also expected that this case could drag for many years, as at least one of the four parties involved would appeal the outcome.

In August, AMIE also unsuccessfully attempted to interdict ITAC to stop them from initiating the current 'Sunset Review'. The South African poultry industry's current round of production is due to expire in October this year but as a Sunset Review has been initiated the protection will continue until such time as the Sunset Review is complete. The South African Poultry Industry has applied for the extension of the US anti-dumping protection. The next step in the Sunset Review is for ITAC to receive comments by all the stakeholders involved in this matter. Within six months from verifying all the information, ITAC is likely to issue a preliminary finding on whether the anti-dumping duty on US poultry imports should continue or not. The South African poultry industry’s view regarding the anti-dumping duty against US poultry imports is clear and they are confident that the protection will continue.

The country's poultry industry is also making progress with their investigation into Brazilian trade practices regarding poultry imports to South Africa. ITAC has, at this stage, agreed to investigate the imports of Brazilian whole birds and boneless cuts. The preliminary findings will most probably be issued in the first few months of 2012 by ITAC. The South African Poultry Industry remains confident that anti-dumping action against Brazil is likely to be introduced.

Further Reading

- You can view the full report by clicking here.

November 2011