The government’s new approach, of creating master plans for agricultural industries after investigating the total value chain, is a step in the right direction. The problem, however, is Government’s inability to implement the policy. By Prof Johan Willemse.
Originally published in Landbouweekblad on 17 December 2020. Reproduced with permission.
The government has embarked on a new approach to investigate and evaluate the entire value chain of an industry, in order to formulate policy around it. This approach has already resulted in the poultry industry master plan and more recently, has seen the first steps towards a plan for the sugar industry.
What is important about this approach is that the focus is not concentrated on only one link in the value chain, but instead involves all stakeholders, from input through production and processing processes, to retail outlets; in order to identify broader issues that may impair competitiveness.
The Australian government places such importance on its agricultural sector that it has published a policy document detailing measures to improve the sector’s international competitiveness.
Viewed in this light, South Africa’s master plans are a definite step in the right direction. At issue, though, is the state’s inability to successfully implement the policy that is agreed upon.
Other industries can take a leaf from the poultry industry’s book with respect to compiling a coordinated policy plan that involves all the relevant stakeholders. It is a time-consuming process and requires considerable negotiation. The SA Poultry Association (SAPA) even managed to convince the trade unions to accept the master plan.
It has become clear that competitiveness in various sectors and industries cannot be managed successfully if a narrow view persists with focus only on one link in the value chain. In the poultry industry local production has suffered great losses over the past several years due to unethical importers using a variety of loopholes to bring massive volumes of cheap chicken products into the country – often poorer-quality meat.
Complaints by SAPA and applications for higher import tariffs and protection against subsidised products were initially dismissed as inefficiency by local chicken producers who weren’t globally competitive.
The ANC government’s approach was unwilling to protect productive sectors of the economy against international competition. It was argued that imports made products available to consumers at lower prices than local producers could offer.
It was believed that this benefited local consumers, but the loss of production capacity and jobs, as well as the local inputs that are required, were completely ignored.
The full picture
To bring the full picture into focus one has to analyse the total value chain and every stakeholders’ contribution. In the case of the chicken industry, much more prosperity is generated domestically with local production than with the importation of cheap chicken products, which are rarely actually cheaper on the shop shelves.
One result of this shortsighted policy has been the destruction of the local textile and clothing-manufactuing industries due to cheap imports. Various other industries, including steel, iron, sugar and wheat, are on the same road to nowhere.
In the meanwhile the government is increasing local production costs with inefficient and sharply rising costs such as minimum wages, electricity costs, municipal tariffs, the expensive transport system and the inefficient civil service.
Over the past few years a number of doctoral and masters students have done substantial research into the competitiveness of the local broiler industry compared to international competitors. The research has firstly been concentrated around the cost of feed, which comprises around 60% or more of local production costs.
Secondly the technical and production efficiencies of local broiler producers were researched. It was found that the local industry can compete with the best in the world… the problem is not the industry’s efficiency, but other issues in the value chain, such as subsidised imports of poor quality; water shortages, problems with electricity supply, and expensive unskilled labour.
Many emerging and small chicken farmers battle to find a market for their products at competitive prices. They are essentially doomed to informal markets, unless they are included in support programmes that assist them to link into the total value chain.
Thirdly it was proved that large volumes of imports are subsidised and arrive in South Africa at prices lower than the production costs in the exporting country. These imports are not held to the same health and quality standards as locally produced chicken. Aside from health risks, this also gives the importer an unfair advantage.
Eventually, in terms of the master plan, the government undertook to impose higher import and antidumping tariffs, based on proven research and facts. Imported products are to be held to the same standards as domestically produced chicken, with correct labelling and source information to enable traceability.
Corrective policy measures spanning the entire value chain and supporting all the stakeholders were agreed upon, with a view to further improve the industry’s global competitiveness.
The state has a key role to play in implementing the correct policy. Unsurprisingly state progress is slow, but at least the industry now has the means to exert pressure in calling for implementation of policy measures.
There are other problem areas, but on the positive side there has been progress in terms of improving the industry’s competitiveness, and there is better cooperation between the different stakeholders. It is important that the state has bought into the plan with a coordinated, supervisory policy. The chicken industry – especially the broiler industry – is the largest sector of agricultural production, and that is why it is important for other industries to take note.
Graph 1 shows the production value of different industries. The broiler industry leads with just under R50 billion – this makes it the largest supplier of meat to consumers. The industry today has a productive and focused producers organisation ushering it onto a growth trajectory (see Graph 2).
Graph 3 shows how imports of poultry meat have stabilised and even declined due to sustained pressure and adjustments in import tariffs. However, chicken products worth R5 billion to R6 billion are still imported annually, representing a huge loss of potential domestic production value.
There are also still plenty of indications of underhandedness in the import industry. Graph 4 shows the most important sources of these chicken imports. The bulk of the imports are leg quarters on the bone, drumsticks and wings, which are not popular in the European market. These products are exported to get rid of it at prices that seem to be considerably lower than the production costs. It is claimed that whenever South Africa increases its import tariffs, the exporters merely lower their asking price accordingly.
The other meat industries should take serious note of the poultry master plan. Chicken is by far the most affordable meat and it is logical that it would win market share – especially since the industry currently emphasises the high quality and traceability of its products.
The pork industry is also showing progress, but for a variety of reasons there is not much progress in the mutton and beef industries. For that reason it is likely that the mutton and beef industries will lose market share over the next 10 years.
