Parliamentary Portfolio Committee on Trade and Industry - PowerPoint Presentation

1. Parliamentary Portfolio Committee on Trade and Industry23 March 2017Poultry trade and jobs- fixing the future Kevin Lovell CEO SAPA

2. Discussion topicsIntroductionBasics of the poultry industryPoultry tradeCompetitivenessDesired outcomesTools availableIndustry commitmentsConclusion

3. IntroductionThe South African Poultry industry is in crisisITAC has determined thatThe industry is in an advanced state of distressThe current cause of the distress is imports from the EU andUrgent action is requiredThis is about dumping, not competitivenessCollective actions taken to date have been inadequatePermanent shrinkage is acceleratingNeed to strengthen the regulatory framework to:Support local industry growth and sustainabilityPrevent rampant dumpingUnrealistic to expect EU and others to change their behaviour

4. IntroductionDesired short and long-term outcomes for the government led task teamTask team had two broad rolesDevelop measures that will stabilise the industry- this work is done and sits with the respective Ministers for implementationDevelop measures that will revitalise the industry – this work is still ongoing To stabilise the industry we need to create a regulatory framework that: Requires exporters to produce products for South Africa - not simply dispose of stored waste Is WTO and treaty compliantReduces imports by at least halfSupports revitalisation:Rural development and transformationIndustry sustainabilityIndustry reinvestmentIndustry growthFood securityJob creation

5. Basics of the poultry industry 2016(please see Agriculture PPC presentation made on 28 February 2017 for more information)Poultry meat: R36.67 billion (R38,8 billion 2015)Eggs: R10.19 billion (R9,8 billion 2015)Combined: R46.86 billion (-3.7% v. 2015)18.0% of all agricultural products (20.9% in 2015)39.0% of animal products (42.8% in 2015)

6. BROILER INDUSTRY:Number of employees (including contract workers)Junior StaffSupervisory and Senior StaffTotalBroiler, Hatchery and Rearing (including GP's)12 6831 56714 250Broiler Processing25 1251 99727 122Broiler Distribution4 3961 5795 975Total – Direct employees42 2045 14347 347Support Industries - Indirect Employees58 782Grand Total - Direct and Indirect Employees106 129Grand total of related field crops47 732Poultry share of related field crops17 859Basics of the poultry industry: broiler employment (2016)Source: SAPA, BFAP6420 less than last year

7. Poultry trade: effective level of protection (2016)ProductOriginVolume(tonne)FOB Value(R)Average FOB Price(R/kg)Tariff / Level of ProtectionTariff Paid (R)Frozen Bone-In PortionsEU194,0852,893,824,55414.910.0%0Other Countries45,380464,275,88510.2337.0%171,782,077All Countries239,4653,358,100,43914.025.1%171,782,077Other Poultry ProductsEU75,088577,219,7717.690.0%0Other Countries245,0641,528,078,9256.246.5%98,736,443All Countries320,1522,105,298,6966.584.7%98,736,443All Poultry ProductsEU269,1723,471,044,32512.900.0%0Other Countries290,4441,992,354,8106.8613.6%270,518,521All Countries559,6175,463,399,1359.765.0%270,518,5212016: 5.0 %

8. Poultry trade: skewed marketsEverything exported to us is surplus to local requirements in the exporting country and undesired – a form of waste.Nothing is made for us.Western developed world (13% of global population) does not eat all the parts of a chicken – a dietary choice that distorts global markets. This is the key problem.Waste is dumped into a few unprotected markets, such as South Africa.

9. Poultry Trade: structural imbalancesEU, US, Brazilian and some other markets structurally imbalanced – not South Africa:EUHigh cost producer - higher cost than South AfricaDo not eat all the parts of the chicken leading to surplus and waste productsAdditionally it imports breast meatAre in an oversupply situation even if they did eat all the parts of a chicken and too expensive to export in the normal course of tradeUSDo not eat all the parts of the chicken leading to surplus and waste productsAre in an oversupply situation even if they did eat all the parts of a chicken and more expensive than Brazil to export in the normal course of trade

10. Poultry Trade: structural imbalances cont.BrazilTrue exporter of whole birds and best cost efficienciesExport breast meat to EU meaning they have surplus leg quarters to sell and are forced to follow US and EU pricing models i.e. are forced to dump as a consequence of western developed world distortionsSAEat all parts of a chicken so is a structurally balanced marketCheaper producer than the EU, the current main cause of problems for the local industryMore expensive producer than Brazil, Argentina, USA and Ukraine (2013 data)- we pay more for maize and soya than they do

11. Poultry trade: rule of lawUS and EU disrespecting the rule of lawBoth have been found guilty of dumping by ITAC and the US has been found guilty of chicken dumping by the trade authorities of China and MexicoUntil a lawful forum overturns the rulings the EU and US cannot claim “allegations of dumping” – they are dumpers

12. Poultry trade: whole chickens (2012 data)

13. Poultry trade: dark and breast meat (2012 data)

14. Poultry trade: chicken meat exporters (2016)

15. Poultry trade: chicken meat importers (2016)

16. Poultry trade: bone-in portions

17. Poultry trade: the balanced market idea6 year period(2010-2016)Poultry meatproductionImports bone-in portionsLocal industry and importer growth4.6%(73 727 tonnes)211.8% (162 737 tonnes)Local population growth11.3%11.3%Real growth-6.7%200.5%

18. Poultry trade: what are the true numbers?How much are we importing? (2016 numbers)Total is 26% of consumption, all products.Bone-in portions are 45% of total chicken imports- ca. 240 000 tonnes - equivalent to ca. 25% of our bone-in production, of which imports the EU supplies 81%. This is an ‘apples with apples’ comparison.We are the EU’s biggest export destination- more than 19% of their exports.It is not the percentage that counts but the effect of the quantity.

19. Poultry trade: what are the true numbers? cont.It is not the percentage that counts but the effect of the quantity:AVEC (EU producer body) says “it is essential to guarantee a fair competition between EU and third countries” and “Further market access or lower import levies granted to countries that do not meet our standards will continue to weaken the competitive position of the EU poultry meat industry and will put at risk a sector employing more than 300, 000 EU citizens.”All of this a concern to the EU with a mere 7% of poultry meat in the EU being imported, not 26% as in our case.Numbers are not the issue; the impact is the issue.

20. Poultry trade: effect of importsFor every 10 000 tonnes poultry meat that is imported we will shed 1 069 direct and indirect jobsSome companies have, or are about to, shed a few thousand jobs in totalRainbow has retrenched 1 350 workers, including managers, last monthCountry Bird will close down their Mahikeng abattoir, and 963 direct and 1605 jobs in total will be lost without government interventionMike’s Chickens in business rescue/ shut down (38 year-old company)Daybreak, first significant black owned producer, in major difficultiesOther companies cutting back on production (Astral on short-time)More than a dozen companies lost in the last few years

21. Poultry trade: effect of imports26 725 - The number of direct and indirect (including grain) jobs that could be created if we did not import any chicken meat (excluding mdm and offal)48 853 - The number of direct and indirect (including grain) jobs that could be created if we did not import any chicken meat (including mdm and offal) - 5% of the national jobs targetChicken imports cannot grow our economy and are jobs destructive. All existing importer jobs would simply be absorbed in the productive industry, absent imports.

22. Poultry trade: effect of importsImports are sold for similar prices to local productsThere is, at best, short term consumer benefitIn the long term no benefit as if we fail food security fails, the balance of payments will worsen and prices will likely go upThere is no such thing as cheap food if you do not have a jobRural development is stalled through the impact of imports

23. The competitiveness argumentWhat is competitiveness?Droughts and competitivenessWhat is the true cost of production?What is fair trade?Can competitiveness compensate for dumping?

24. CompetitivenessWhat does it mean to a poultry producer?The ability to source feed ingredients and other inputs at similar prices to the market leader, whosoever they may beUsing good stockmanship to produce chicken meat at globally competitive pricesHow do we rank?

25. Competitiveness: grain prices -Chicago Board of Trade (CBOT) base

26. Competitiveness: grain prices -Chicago Board of Trade (CBOT) base

27. Competitiveness: feed costs (2016 ingredient cost comparison)CountryMaizeSoya bean meal2016 av.2016 av.Unit:US$ per tonneUS$ per tonneUSA139349Brazil131377SA222424

28. Source: SA Producer, USDA & Nutron BrazilBROILER BENCHMARK EFFICIENCIES (2011)Competitiveness: productivityBrazilSA producerUSAAgedays353535Live weightkg1 8831 8401 805Average daily gaing/day53.8152.5651.59Mortality%3.144.522.37Feed conversionratio1.6581.6711.802Performance efficiency factor314301280

29. Competitiveness: whole birds (LEI study - 2013 data)Source: BFAP, LEI

30. Competitiveness: the droughtsTwo droughts in a rowHow does agriculture normally compensate? Prices go up- maize meal prices went up, chicken prices did not.Why? Simply because of dumping and its price suppressive effectThe droughts have not been the problem, unwelcome as they may be, dumping has been and remains the problem.

31. Competitiveness: true cost of productionFundamental difference in approach to understanding costs of production between EU/US and pretty much everyone elseWe say a whole bird has a real cost of production and is a finished product – lots of people eat them. Further processing the bird by portioning or other actions adds costsThe EU and US say that portions have no original cost, only an allocated cost, designed to match the value of the products with a theoretical costLife is not theoretical and cost and value are not the same thing. Cost is real.

32. Competitiveness; true cost of production SA vs. USA (2016) R/kgPORTIONUSASADifference% Whole broiler27.4019.41-7.99-29.2Breasts, deboned and skinless42.2626.13-16.13-38.2Leg quarters9.8019.749.94101.4Source: USDA, SAPA

33. Competitiveness: what is fair trade?‘Free’ trade does not automatically mean ‘fair’ trade.‘Fair’ trade means: you have a chance to compete against the other on price, quality, market access.In a ‘fair’ market there will be no EU imports as they are a higher cost producer than we are. They are dumpers.Unfairly priced goods cannot lead to ‘free’ and ‘fair’ trade, only to abuse. Trade can only be ‘fair’ if both parties see it that way.

34. Competitiveness: a tool against dumping?Producing the cheapest whole bird in the world will not allow you to compete against dumping, only against ‘fair’ competition.Costs are real and must be the basis for price formation.The purpose of dumping is market access in an uncompetitive way.We would like cheaper maize and soya and need this if we are to export. We need action against dumping to survive and support for cost reduction to grow and to export. The issues are separate.

35. Desired short and long-term outcomes for the government led task teamTask team had two broad rolesDevelop measures that will stabilise the industry- this work is done and sits with the respective Ministers for implementationDevelop measures that will revitalise the industry – this work is still ongoing To stabilise the industry we need to create a framework that makes exporters have to produce products for South Africa, not simply dispose of stored waste, if they want to sell to usBe WTO and treaty compliantImports to be reduced by at least halfIndustry survivalIndustry reinvestmentIndustry growthFood securityJob creationRural development and transformation

36. Desired outcomes: transformation opportunityMore than a ¼ of consumption is directly or indirectly through imports.No market needs to be created to establish space for transformation- we only need an enabling regulatory frameworkKey areas of focus for successful transformationGovernment procurement and retail opportunitiesDebate on contract production needed- a number of producers do not see this as transformationalSize of farms needs clarity- small farms will always need support but can be good for the country

37. Tools available: best optionsMeasures that make exporters have to produce for South AfricaApply existing standards and regulations equally – a Minister Gigaba approachHighly Pathogenic Avian Influenza (HPAI) inspection regimeEU Safeguard and general Most Favoured Nation (MFN) tariff increaseAnti-dumping duties

38. Tools available: export supportNB. Exports not intended to secure survival but to assist growth. Neither are they a quid pro quo for dumping.We request an export agency funded by governmentWe need dedicated State support to remove SPS barriersGovernment requested to resolve Namibian access matter

39. Tools available: other measuresPoultry meat and egg designationRemoval of soya bean and soya oilcake tariffs Indirect maize price managementMechanically Deboned Meat production support schemeVAT removalTrade distorting subsidisation as per WTO agreement

40. Industry commitmentsTransformationIndustry reinvestmentResponsible industry growthSARS contributionsJob creationRural developmentFood securityLong term partnership post rescue- with milestones and reviews

41. ConclusionThe survival of this industry, food security, the rural economy and up to 130 000 workers and their families is largely in the hands of government.If government helps us survive we can grow and contribute substantially to the future of our country.There is very little time to act and do the right thing.

42. Questions?Source: Getty Images