18 February 2024   •   Agriculture
Disbelief at poultry market inquiry

The South African government’s unexpected inquiry into the local poultry market has sparked disbelief among analysts and role-players. The South African Poultry Association says that it could exacerbate existing challenges faced by the industry.

The South African government’s unexpected inquiry into the local poultry market has sparked disbelief among analysts and role-players. The South African Poultry Association says that it could exacerbate existing challenges faced by the industry.

An independent market analyst says he is mystified at why the South African government is “targeting” the local poultry industry, and suspects it may be a sop to voters in an election year.

Anthony Clark said he has been following the poultry industry for 20 years, and had reacted with “total disbelief” to the announcement of the poultry market inquiry.

Clark said the industry had invested billions of rand in expanded production in terms of the poultry master plan, but over the last two years the government and Minister Patel’s department had “done everything in their power to chip away and try to burn in flames the poultry master plan”.

One of these “harmful actions” was the decision on import tariff rebates. Clark noted that the poultry industry faced a host of government-created obstacles, including repeated power outages, failing infrastructure and water supply issues.

In an interview with radio station 702, Clark said these issues had caused losses last year. “The competition commission is going after a sector which basically makes no money.”

He noted that governments in other countries were encouraging poultry companies to consolidate in order to bring down costs. “Here the government is trying to break them up or make them even more fragmented”.

Clark said the inquiry made no sense and must have come “like a bolt from the blue” to the local poultry industry. “Is this an electioneering tactic?” he asked.

“Puzzled by poultry inquiry”

Equally surprised are Wandile Sihlobo and Prof Johann Kirsten of the agricultural economics department at Stellenbosch university.

In a letter to Business Day, they said that the 2019 poultry master plan aimed to boost inclusive growth in the poultry industry.

These efforts had been constrained by the covid-19 pandemic and growth-constraining factors such as the poultry industry “having to operate in an environment of failing municipalities, power cut issues, rising imports, higher feed prices and avian influenza, among other things”.

The industry had operated almost in a crisis mode, the challenges constraining inclusive growth persisted and the associated costs of these broad problems limited the participation of small players.

“This means if we care about inclusive growth in the poultry industry, we should focus on resolving issues of failing municipalities, power cuts and biosecurity, among other things.

“We are therefore puzzled by the idea that there is a Competition Commission inquiry into the poultry industry now, while the factors distorting progress in the industry remain unresolved, they wrote.

“We should first resolve these growth-inhibiting issues, assess whether the pace of inclusion of small players still won’t take off, and only then consider whether an inquiry is warranted.”


Industry sees no need for poultry market inquiry

The poultry industry has reacted vigorously to the announcement of a government investigation into the local poultry market.

While stressing that it would co-operate fully, the SA Poultry Association (SAPA) said the inquiry was unnecessary and that it was disturbed by the “hostility” shown in competition commission remarks.

“Through our contributions, we will try to ensure that the inquiry does no further harm to this strategic national industry,” SAPA said in a statement.

“Central to the inquiry will be the issue of the concentration of large companies in both the broiler and egg industries. There seems to be an underlying suspicion this is bad for the industry and for consumers. We will provide the inquiry with our views on these matters.”

The industry was also concerned about the commission’s statement that there are “ongoing demands for bailouts through ever-increasing tariffs and the imposition of anti-dumping duties.”

The poultry industry said it had never in its history asked for “bailouts”. The use of the term “indicates a hostility that we find disturbing,” the statement said.

“What the industry has asked for is protection against unfair and dumped imports. ITAC investigations have repeatedly found that these imports are harming the industry and costing local jobs.”

The industry rejected suggestions that it was not competitive. International research had shown repeatedly that South African poultry producers were among the most competitive in the world. However, the industry had been hit recently by cost increases from higher input costs, repeated power outages, other infrastructure failures and bird flu outbreaks.

“The result has been that the industry made no profits last year, and top companies recorded substantial losses.

“Additional stress on profitability is likely to be done by the government’s introduction of rebates on poultry import tariffs. This will bring in unneeded additional imports when the local chicken market is in oversupply,” SAPA said.

“The poultry industry has for decades supplied South Africa with affordable meat protein. If it is to continue to do so, it deserves understanding and support.”

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18 February 2024   •   Agriculture
Astral CEO asks why government is attacking the poultry industry

Chris Schutte, CEO of Astral Foods, says the recent announcement of a poultry market inquiry was an unjustified assault on the industry, stressing that the struggling poultry sector needs support and investment, not further scrutiny.

Chris Schutte, CEO of Astral Foods, says the recent announcement of a poultry market inquiry was an unjustified assault on the industry, stressing that the struggling poultry sector needs support and investment, not further scrutiny.

Chris Schutte, CEO of Astral Foods, South Africa’s largest poultry producer said the announcement of a poultry market inquiry was an “attack” on the poultry industry.

In scathing comments to the financial newspaper Business Day, Schutte said he was “flabbergasted” by the market inquiry announcement and “I’m gatvol of this attack”.

“South Africa’s poultry industry is the biggest player in the agricultural sector and provides affordable protein. Why not support this industry? Why fight it? That part is very difficult for me very to understand.”

Schutte said the competition commission should look at companies with fat profit margins of 20%, not those in the struggling poultry sector.

“We are making paper-thin margins. Our margins are 1% or 2%. The government should come and say, let’s help this industry thrive, grow and employ people.”

Business Day said the industry feels particularly betrayed as it signed the poultry sector master plan with trade, industry & competition minister Ebrahim Patel in 2019 and agreed to invest in local production and increase jobs in feed businesses and at chicken farms and abattoirs.

Schutte said: “We as the industry were committed to this plan. We did everything that was required, including investing massive capital into infrastructure development.”

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18 February 2024   •   Chicken Industry
Importers’ bubble bursts

South African poultry producers and importers are at odds over the introduction of rebates in chicken import tariffs. Producers fear a surge in imports, while importers express concern that the rebates might not materialise due to stringent conditions set by the trade regulator.

South African poultry producers and importers are at odds over the introduction of rebates in chicken import tariffs. Producers fear a surge in imports, while importers express concern that the rebates might not materialise due to stringent conditions set by the trade regulator.

South African poultry producers and chicken importers are agonising over different aspects of the proposed introduction of temporary rebates in chicken import tariffs.

Producers worry that the rebates will be introduced, resulting in new surge of chicken imports. Importers, on the other hand, are now worried that the rebates might not come into effect.

Importers have championed the rebates idea, without mentioning the profits bonanza they might enjoy from increased import volumes and higher margins. They have been dreaming of rebates in force for a year at a time, guaranteeing them 12 months of higher revenues.

Now they see those anticipated profits disappearing because the barriers to getting rebate permits are too high and importers will actually have to prove that the rebates are needed. 

Paul Matthew, head of the importers’ association AMIE said in an article in Business Day that “the likelihood of any rebates being granted is remote”.

He complained about the conditions permit applicants would have to meet. He said guidelines issued by the trade regulator, the International Trade Administration Commission (ITAC), included “a quota system, historically disadvantaged individual requirements, and a process to justify shortages”.

Justifying shortages is key to the whole issue. Matthew doesn’t say that the guidelines state at the outset that permits will only be issued if there is a shortage of chicken on the local market, and then only if that shortage is caused by bird flu outbreaks.

Neither condition pertains at the moment. Importers applying for rebate permits will know that, hence the pessimism that Matthew is expressing. Everything else is bluster.

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18 February 2024   •   Chicken Industry
More rebates confusion

The announced rebates on poultry imports have sparked confusion and concern among stakeholders, with discrepancies emerging between what South Africa’s trade regulator has announced and what was initially proposed.

The announced rebates on poultry imports have sparked confusion and concern among stakeholders, with discrepancies emerging between what South Africa’s trade regulator has announced and what was initially proposed.

Last week this bulletin reported that the rebates on poultry imports would be worse than had been intended by the trade regulator, the International Trade Administration Commission (ITAC).

As confirmed by XA trade advisors, the tariff on bone-in chicken imports which compete with locally produced frozen packs would be 25% after the rebates, instead of the 37% that XA said ITAC favoured. Conversely, the rebated tariff on boneless cuts, imported in far smaller quantities, would be 30% instead of the 12% that ITAC wanted.

Since then, ITAC has issued a media release in which it says – guess what? Rebated tariffs on bone-in chicken portions will be 37% and on boneless cuts they will be 12%.

These are the tariff rates that applied before increases in 2020, and chicken importers have been agitating for a return to those levels.

There’s only one problem. As far as FairPlay can see, the new rates that ITAC says will apply have not been gazetted.

The last government gazette on the issue was published on 29 January. It stated that the rebates that would apply would be “full duty less 25%” for bone-in portions and “full duty less 30%” for boneless cuts.

These are the rates that XA explains mean effectively that the current 62% tariff on bone-in portions will be reduced temporarily to 25% and the 42% tariff on boneless cuts will come down to 30%. But that’s not what ITAC says – it maintains the effective rates are 37% and 12%.

So what’s the truth? We’ll know in the near future when ITAC announces the outcome of the first applications for rebates.

Logic says the applications should be turned down, because permits can be issued only when there’s a shortage of chicken on the local market, and only when that shortage is caused by bird flu outbreaks. Neither condition applies at the moment, and both are necessary if ITAC is to approve rebate permits.

However, election years bring political pressure, and ITAC’s independent status could be sorely tested.

The ITAC statement opened with “a degree of concern” that some stakeholders (read poultry producers) had reacted with dismay and even anger to the rebates announcement.

What did it expect? Fulsome praise for an unnecessary scheme to solve a non-existent problem? Support for a plan which could result in a damaging flood of imports into market that is already in oversupply?

It should instead take the poultry industry’s views into consideration – preferably by calling for submissions – when it looks at requests from chicken importers for rebate permits.

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18 February 2024   •   Food security
VAT-free chicken will help poor people afford meat

FairPlay has urged South Africa’s finance minister Enoch Godongwana to consider removing the 15% value-added tax (VAT) from locally produced chicken portions, stressing the urgency to make chicken more affordable for low-income households

FairPlay has urged South Africa’s finance minister Enoch Godongwana to consider removing the 15% value-added tax (VAT) from locally produced chicken portions, stressing the urgency to make chicken more affordable for low-income households

South Africa’s finance minister Enoch Godongwana has asked for suggestions on things he could include in the budget speech later this month.

FairPlay has advised him to remove the 15% value added tax (VAT) from the local chicken portions most consumed by low-income households.

In a letter to Minister Godongwana, FairPlay founder Francois Baird said the movement had called for “VAT-free chicken” since 2018, and the need was now even more urgent. Food prices and input costs for locally grown chicken had increased substantially. 

“Although the rate of increase has moderated in the past year, food prices remain high. The result is that millions of South Africans cannot afford a nutritious diet, even when food is available.”

Baird said chicken was an important dietary requirement for children.

“You will be aware of the finding that more than a quarter of our children are afflicted by stunting, which is caused by malnutrition. Stunting affects these children physically and mentally for the rest of their lives – it destroys their future.

“We must keep chicken affordable for low-income households, and especially for those with children. VAT-free South African bone-in chicken would enable an immediate reduction in the price of the chicken portions most consumed by these households,” Baird said.

“On behalf of South Africa’s mothers and children, I urge you to make bone-in South African chicken VAT-free,” he concluded. 

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11 February 2024   •   Agriculture
Dismay, disappointment and anger at tariff rebates decision

The South African poultry industry voices its discontent over proposed import tariff rebates amidst a surplus of chicken, highlighting concerns about import policies and their potential effects on local producers and consumers.

In addition to continuing poultry industry dissatisfaction with the planned tariff rebates on chicken imports into South Africa, there’s a suggestion that the government has not applied the rates that were recommended.

Producers can see no reason for the rebates, which will be permitted only if there is a shortage of chicken on the local market, and then only if that shortage has been caused by an outbreak of bird flu. Both conditions are necessary and neither applies at the moment. Bird flu has abated, chicken is in surplus and prices are coming down.

The SA Poultry Association (SAPA) said the decision to encourage additional chicken imports was irrational, and there could be no justification for approving any rebates applications. It said the industry was “already on its knees” because of bird flu outbreaks, power outages and high input costs.

SAPA’s Izaak Breitenbach told SABC television that the industry was “very disappointed” at the rebates announcement. There had been no shortage last year and there was plenty of chicken available at the start of 2024. Encouraging additional imports now would “exacerbate the oversupply” he said.

The Sunday Times this week headlined its report “Local poultry industry angry at import tariff cuts”.

It noted the trading update from Astral Foods, in which the country’s largest poultry producer said it was “dismayed” at the poultry import tariff rebate structure recommended by the trade regulator, the International Trade Administration Commission (ITAC).

“No shortage of chicken has been experienced or expected in the local supply chain with industry production at normalised levels due to numerous contingency plans implemented,” Astral stated. 

The newspaper also quoted FairPlay founder Francois Baird as saying the rebates scheme was “not a rebate, it’s a nullification” and it would inflict fresh punishment on a battered poultry industry.

Baird said rebates would only enrich importers and not bring prices down for consumers “because importers don’t pass on those savings, they just pocket them”.

His advice to trade minister Ebrahim Patel was to keep import tariffs and anti-dumping duties in place and rather scrap the 15% value added tax on locally produced bone-in poultry to keep chicken affordable for low-income households.

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