Green light for bird flu vaccination in South Africa

South African food producers, including the poultry industry, have argued for additional essential food items to be exempt from 15% value added tax (VAT).

Two draft budget proposals this year would have raised the VAT rate, and expanded the VAT-free list to lessen the blow to low-income households. Parliament is now discussing a third draft, with no VAT increase but no expansion of the VAT-free food basket.

The exclusion of additional foods was a mistake, the food producers told a parliamentary hearing last week. Poor people are struggling, they argued, and targeted interventions are needed even though the VAT rate remains unchanged.

Frozen chicken and fresh and frozen chicken offal should be zero-rated, said the SA Poultry Association (SAPA) and meat importers represented by the Association of Meat Importers and Exporters (AMIE).

Poor and low-income households rely heavily on chicken as an affordable and healthy source of protein, submitted SAPA’s Izaak Breitenbach on behalf of both organisations.

“Chicken is a high-protein, nutrient-dense food. It is significantly richer in protein than any of the items currently included in the zero-rated basket,” he told parliament’s standing committee on finance.

The Consumer Goods Council argued that expanding the list of zero-rated food products would enable poorer households to afford more healthy and nutritious food. Leaving the VAT rate unchanged did not reduce the burdens on financially vulnerable households, argued the council’s Neo Momodu.

She pointed out that the government had earlier intended to add a number of essential foods to the VAT-free basket. This included canned beans and peas, dairy liquid blends and certain organ meats (offal) from sheep, pigs, goats and poultry.

Zero-rating these additional products would have gone a long way not only to cushion consumers but also to improve healthy eating and healthy lifestyles, and improve food security, she said.

Ways should be found to ease the “untenable financial strain” that South African consumers, particularly lower income households, were facing, she concluded.

Clover – a major dairy producer that has expanded into the broader foods sector – argued for the zero-rating of dairy liquid blends, Moneyweb reported.

“These drinks have been designed to assist poorer families and making it tax exempt will be a tangible and immediate relief for families affected by the cost of living,” the group said in a statement to the committee.

Moneyweb said the National Treasury’s response to the submissions was that zero rating was a blunt tool to assist lower-income households, compared to targeted expenditure.

There was no guarantee that there would be a reduction in prices and “it is also a subsidy to all consumers,” the Treasury contended.

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Making essential foods cheaper for poor consumers was more than worth the loss of revenue from value added tax, poultry producers and importers told parliament last week.

Removing VAT from chicken products consumed by poor households was “an economic and a social justice imperative,” Izaak Breitenbach of the SA Poultry Association (SAPA) told the standing committee on finance. He was presenting on behalf of SAPA and the Association of Meat Importers and Exporters (AMIE).

Producers and importers have jointly argued for the removal of the 15% VAT from frozen chicken and from fresh and frozen offal products.

VAT relief would have a major positive impact on nutrition and poverty relief for the poor, Breitenbach said. He drew attention to the following:

• South Africa has one of the highest stunting rates in the world, currently estimated at 28.8% of all children under five years old and 36% for poorer households. Stunting, caused by chronic malnutrition, resulted in “irreversible physical and cognitive deficits”.
• The government had to address the impact of VAT on poorer households. Zero-rating chicken was a targeted way to do this. Chicken had a lower cost per gram of protein than pork mince, eggs or beef mince.
• Chicken was higher in protein than any of the products currently on the zero-rated list. No animal proteins, except for pilchards, were zero-rated for VAT. Frozen bone-in chicken and fresh and frozen offal would therefore have a major impact on malnutrition for the poor.
• Zero-rating these chicken products would disproportionately ease the burden on poor and low-income households who relied on chicken as a crucial and healthy source of animal protein. It would help adults reach daily protein targets and would prevent malnutrition and stunting in children.
• Removing VAT from these chicken products could potentially result in a loss of R4.9 billion in annual revenue. This would be only 0.27% of total projected revenue this year, or 1.08% of the projected VAT collection.

“The perceived or any actual loss of revenue to the fiscus cannot be unjustifiably privileged above securing affordable nutritious food for the benefit of lower income households,” Breitenbach said.

Countering suggestions that the benefits of VAT exemption might not be passed on to consumers, he noted the many chicken price monitoring measures implemented by government and the private sector.

“Not only will this ensure that there is an accurate starting point from which to evaluate prices following the implementation of the zero rate, but the existing infrastructure is sufficiently developed to ensure ongoing accuracy and transparency of pricing information,” Breitenbach concluded.

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Pressure is mounting on the South African government to allow poultry imports from parts of Brazil that are not affected by bird flu.

Brazil supplies 80% of South Africa’s poultry imports, and all imports have been banned after a bird flu outbreak at a poultry facility in Brazil’s southernmost province, Rio Grande do Sul. The reason for the nationwide ban is that Brazil has no compartmentalisation agreement with South Africa that would restrict the ban to the area affected.

That application must come from Brazil, but whether that happened in recent talks is not clear. Dr Mpho Maja, director of animal health in South Africa’s agriculture department, told the Sunday Times that one meeting had been held and others may follow.

She said the government’s response to the Brazilian outbreak was informed by a need to protect local birds and consumers in line with the World Organisation for Animal Health’s standards.

“We accept all measures that are internationally recognised — zoning, regionalisation and compartments, provided that they comply with the requirements of the World Organisation for Animal Health. We are having conversations with everyone on these requirements, and that includes Brazil.”

Poultry producers, who supply 80% of South Africa’s chicken needs, have said production increases will ensure there is no shortage of chicken meat following the Brazil ban. That assurance does not cover mechanically deboned meat (MDM), a paste used in the production of processed meats such as polony. MDM is not produced in large quantities locally, and most imports come from Brazil.

Chicken importers face a huge loss of income, and are clamouring for compartmentalisation. They predict shortages of MDM and offal products such as chicken heads, feet and livers, with resultant price increases.

Imamaleng Mothebe, CEO of the Association of Meat Importers and Exporters (AMIE) pointed out that many countries are continuing to import poultry from Brazil because of compartmentalisation agreements.

Namibia was among the countries restricting the ban to the Rio Grande do Sul province. Others had agreed to ban much smaller areas such as the local Montenegro municipality or to a 10 km radius around the affected chicken hatchery, she said  in an article in Business Day.

This is the first bird flu outbreak in Brazil, which is the world’s largest poultry producer. Whether the disease spreads to other facilities and other provinces, as it has in countries around the world, remains to be seen.

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Chicken importers appear to be making fat profits from sales of mechanically deboned meat (MDM) ahead of an expected shortage because of the bird flu ban on poultry imports from Brazil.

MDM is used in the production of polony and sausages, and nearly all of it is imported from Brazil. The ban on Brazilian products will put a stop to that. The price of MDM is expected to go up, with resultant price rises in polony and sausages.

But not just yet. The ban was announced on 19 May and frozen shipments from Brazil can take six weeks and more to reach South Africa. So the supply, for the moment, is normal, import volumes are normal and importers are presumably paying normal prices for MDM arriving now but shipped months ago.

The bad news is that MDM prices are already going up steeply.

FairPlay challenged importers on this, after being told that meat processors were suddenly being charged R30/kg for MDM that used to cost R20/kg. It’s even worse than that, according to the importers themselves – MDM has gone up from R13/kg to R31/kg.

Importers will doubtless say it’s supply and demand – local meat processors are stocking up ahead of the coming halt to Brazilian imports. However, with import volumes unaffected for many weeks to come, their selling price – and profits – have suddenly shot up.

FairPlay founder Francois Baird said it appeared chicken importers were exploiting consumers by raising prices when imports were not yet affected.

“So what is the justification for the price increase? Is this a case of make as much as you can while you can?” he asked.

In an interview with ENCA, Baird also pointed out that, while supplies of MDM might be affected by the Brazil ban, the supply of chicken meat to the local market was not. South African producers already supply nearly all of the market needs and have said they can increase supply to make up for any shortfall.

FairPlay hopes the Competition Commission monitors MDM pricing, now and in the weeks and possibly months to come.

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Funding cuts by the Trump administration in the United States have resulted in the closure of a US-funded chicken project in Lesotho.

The five-year R500-million project aimed to boost chicken farming in Lesotho and lessen its reliance on chicken imports, according to a GroundUp article. Funding for the project was halted by the US Department of Agriculture, the report said.

“The Sustainable Transformation of Enterprises in the Poultry Sector (STEPS) project, launched in 2023, aimed to grow 28,000 poultry enterprises in Lesotho and boost meat production by 40% and egg production by 30% by 2028.”

The project was also designed to reduce Lesotho’s heavy dependence on imported poultry products by empowering local farmers through access to quality inputs, financial training, and market linkages. The broader aim was to improve food security and increase incomes along the value chain.

A US company, Land O’Lakes, was the programme implementer and responsible for the projects work on national-level commercial farming. The local project partner, Rural Self-Help, focused on grassroots farmers.

Beyond confirming that Land O’Lakes had been told to suspend the project, the company would not comment to GroundUp. Mampho Thulo, managing director of Rural Self-Help, said the sudden halt had left thousands of poultry farmers in limbo.

Her organisation had been working with farmers ranging from subsistence farmers to those keeping 500 chickens.

“The plan was to support 23,000 to 28,000 businesses by 2028,” she added.

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All three of South Africa’s listed poultry companies have warned of the high risks of renewed bird flu outbreaks and complained of the lack of progress in government approvals for a vaccination programme.

The poultry industry is recovering, somewhat slowly, after a disastrous 2023 when the the industry was hit by the worst bird flu outbreak in the country’s history. While producers hope to avoid a repetition, they remain fearful.

Bird flu outbreaks tend to be worse in the winter months, which are now approaching. No vaccinations have taken place because the government is insisting on requirements which companies say are too onerous and too costly. Negotiations have so far produced no compromise.

Three poultry companies are listed on the Johannesburg Stock Exchange. They are Astral Foods and Rainbow Chickens, South Africa’s first and second largest chicken producers, and Quantum Foods, the country’s major egg producer which also has a sizeable broiler chicken business.

They have all told shareholders that avian influenza (AI or bird flu) is a serious potential risk to their business operations this year.

Reporting interim results in March, Rainbow detailed the steps it had taken to reduce the bird flu risk, including best-practice bio-security enhancements and relocating “in record time” its Midrand breeding facility to a less densely populated region. 

“While the Government has provided a protocol for AI vaccination, the cost and conditions are prohibitive for both the table egg and chicken industries and requires urgent reconsideration by the State,” Rainbow said.

Both Astral and Quantum reported interim results this month. Astral stated briefly that “Bird flu remains a major risk to the local poultry industry, with little progress towards approval for the vaccination of poultry breeding stock”.

Quantum was more expansive, stating that the risk of a bird flu outbreak is regarded as “very high” for the remainder of the financial year. It noted increased bird flu outbreaks in the United States, Europe, North Africa and West Africa. 

“The stringent protocols for voluntary vaccination against HPAI published by the South African government remain prohibitive, with, to the best of the Company’s knowledge, no producers having been successful in their applications to vaccinate poultry. 

“In the absence of vaccination, HPAI will remain a key risk factor that will continue to affect poultry businesses going forward, resulting in major uncertainty for the poultry industry, which could severely impact earnings,” Quantum said.

Its risk reduction strategy included reducing the number of layer birds in higher-risk geographical areas and sourcing layer hatching eggs from a larger number of geographically diverse breeder farms.

Bird flu continues to sweep through poultry producing countries, and has been reported for the first time in Brazil, the world’s largest poultry producer. The winter months will be a nervous time for South Africa’s chicken farmers.

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