Highlights

Although annual growth in broiler production in South Africa slowed down in 2009, Post foresees an increase in production of three per cent to 957 million broilers or 1.290 million tons of meat in 2010.

Broiler meat imports into South Africa are primarily exchange rate-driven and if the strong Rand continues further into 2010, broiler meat imports are expected to reach almost 225,000 tons in 2010, or 17 per cent of local production. Although Brazil is the most important supplier of poultry meat, the South African Poultry Industry requested that anti-dumping duties against Brazil be introduced. Meanwhile, the anti-dumping duties on broiler meat imports from the US can be declared unlawful in a court case that will start on 31 August 2010. Meat importers will ask for an interdict for relief from having to pay the anti-dumping duties, while the court case continues. The current five-year anti-dumping duty on chicken meat portions imported from the US expires on 26 November 2011.

Executive Summary

The South African poultry industry, with a gross value of more than 23 billion rand (ZAR; US$3 billion), is the country’s largest individual agricultural industry and contributes more than 17 per cent to agriculture’s Gross Domestic Product. The last two years were characterised by high feed prices, the worldwide economic recession, high inflation, high interest rates, a slow-down in consumer demand and job losses negatively impacted on the broiler industry in South Africa.

The annual growth in average broilers produced per week slowed down in 2009 to only 1.1 per cent. However, in 2010, post estimates an increase of three per cent over 2009 in average weekly broiler production as South Africa’s economy recovers. Post forecast an increase of three per cent over 2009 in average weekly broiler production in 2010. This translates to 957 million broilers or 1.290 million tons of meat that will be produced in 2010.

The Rand exchange rate primarily drives broiler meat imports into South Africa. Broiler meat imports increased in 2009 by 7.8 per cent to reach 205,827 tons due to a stronger Rand. If the strong Rand continues further broiler meat imports are expected to reach almost 225,000 tons in 2010, or 17 per cent of local production. Brazil is the most important trading partner for South Africa in terms of poultry meat imports, having 74.6 per cent of the market.

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. This means that anti-dumping duties on broiler meat imports from the United States can be declared unlawful. ITAC are now launching an application to address the consequences of the ruling. The court case will start on 31 August 2010. Meat importers have asked for an interdict for relief from having to pay the anti-dumping duties, while the above mentioned court case continues as it is expected that the court case will be drawn out indefinitely.

The current fev-year anti-dumping duty on chicken meat portions imported from the United States expires on 26 November 2011. ITAC notified relevant stakeholders that the last day for the submission of information is 21 April 2011.

The South African Poultry Industry is also making progress with their investigation into Brazilian trade practices regarding poultry imports to South Africa. The South African Poultry Industry remains comfortable that anti-dumping action against Brazil for trade irregularities is likely to be introduced.

US$1 = ZAR7.50 (on 22 July 2010)

Production

The South African poultry industry, with a gross value of more than ZAR23 billion (US$3 billion), is the country's largest individual agricultural industry and contributes more than 17 per cent to agriculture’s GDP.

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 grew by an average four per cent per annum. However, the last two years were of the most challenging the past decade. High commodity prices, which resulted in high feed prices, followed by the worldwide economic recession, characterised by high inflation, high interest rates, a slow down in consumer demand and job losses impacted negatively on the broiler industry in South Africa. In addition, the production capacity expansion programmes of a few years back and increased imports due to a stronger Rand exchange rate created an over-supply. However, as the South African economy is recovering from the recession, domestic demand for poultry products is expected to increase.

The broiler industry in South Africa produced on average 17.8 million broilers per week in 2009. The annual growth in average broilers produced per week slowed down in 2009 to only 1.1 per cent or 190,000 broilers. In the period 2000 to 2008, the annual growth in average broilers produced per week was 4.2 per cent. Total broiler production for 2009 amounted to 931 million broilers or 1.250 million tons of meat. Total broiler production in 2009 was only 0.8 per cent more than the 924 million broilers or 1.240 million tons of meat produced in 2008.

In 2010, an increase in broiler production is foresee as South Africa’s economy recover and companies produce more due to low profit margins. The average weekly broiler production in the first seven months of 2010 was 476,000 or 2.7 per cent more than the 2009 average. Comparing July 2010 with July 2009, the average broiler production per week is 868,600 or 4.8 per cent more. Post forecast an increase of three per cent over 2009 in average weekly broiler production in 2010. This translates to 957 million broilers or 1.290 million tons of meat that will be produced in 2010.

Structure

The broiler industry in South Africa is dominated by two large producers, namely Rainbow and Astral. Together, these two companies produce 50 per cent of total broiler production in South Africa. Rainbow, on average, produces 4.4 million broilers per week and Astral, on average, 3.8 million broilers per week. The third largest producer, Country Bird, produces 1.3 million broilers per week or eight per cent of total broiler production in South Africa. Four medium-sized producers (producing more than 600,000 broilers per week) supply 20 per cent of the market followed by approximately 44 smaller producers, each with an ouput of less than 200,000 broilers per week.

A degree of consolidation has taken place in recent years, with bigger players buying up some of the smaller producers. In addition to producing economies of scale, these actions have reduced the potential for price wars in the consumer market. As a result, poultry producer prices increased on average by 8.2 per cent per annum between 2000 and 2009.

Feed cost

The poultry industry suffered dramatic feed price increases in 2008 (from ZAR2,648 per ton to ZAR3,502 per ton or 32 per cent), due to the significant increase in the prices of corn and soybeans. 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 soybean crop, feed prices due to decrease in 2010.

Corn is the major ingredient – more than 50 per cent – in broiler feed and any change in the price of corn impact directly on the profit margin of broiler producers. The poultry industry consumes approximately 2.4 million tons of corn (mainly yellow corn) or 25 per cent of total corn consumption in South Africa on an annual basis. Another important product in the 3.59 million tons of feed (68 per cent of all feed manufactured in South Africa annually) consumed by the poultry industry is soybeans.

Animal health and diseases

The broiler industry in South Africa has become largely resilient in disease situations. The past few years have seen a large 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 highl pathogenic avian influenza (HPAI) elsewhere in the world remains 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. To date, the HPAI epidemic has not negatively impacted the South African poultry industry. A routine surveillance programme has been in place for more than two years and chickens have, at all times, remained negative for avian influenza.

Newcastle disease, however, remains virulent for the fourth year of constant occurrences. The spread of Newcastle disease can be largely attributed to a lack of bio-security 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 exceptional growing demand – in the region of six per cent per annum – for broiler meat that characterised 2000 to 2008, did not continue through to 2009.

As already mentioned, the high interest and inflation rates impacted negatively on consumers’ spending ability. The local chicken market is estimated to have declined in Rand value by one per cent in 2009 to ZAR17.5 billion ($2.3 billion). However, broiler meat remains an affordable protein source relative to other meat protein sources in South Africa. The South African per-capita consumption of broiler meat in 2009 was 30.8kg. In comparison, each South African consumed only 3.7kg of mutton, 4.1kg of pork and 16.7kg of beef in 2009. Except price, the rise in broiler meat consumption in the past few years also be attributed to the broiler industry’s response to the needs of consumers and food services operators for value-added, brand name and convenience products and not only producing commodity volume products.

Post expects that broiler meat demand will start growing again in 2010 as the South African economy recovers from the recession. Economic growth is the main overall driver for the increased demand for broiler meat as rising living standards will push large numbers of consumers towards protein filled diets, health awareness and convenience. Other reasons for the expected increase in the consumption of broiler meat include increased marketing by broiler producers, price competitiveness relative to other proteins on the market and a still relative low per-capita consumption of chicken in South Africa compared with other economies in the world. The growing trend towards processed chicken meat and more sophisticated value-added products will create further market opportunities.

South Africans now eat more than double as much poultry as in 1993.

Trade

Broiler meat imports into South Africa are primarily exchange rate-driven. When the Rand appreciates against the United States dollar, imports of broiler meat increases (as meat imports become cheaper); and when the Rand depreciates against the United States dollar, imports of broiler meat decreases.

Broiler meat imports increased in 2009 by 7.8 per cent to reach 205,827 tons. Imports accelerated in the last six months of 2009 when the ZARR/US$ exchange rate appreciated to an average of ZAR7.66. The strong Rand continued into 2010 and broiler meat imports until May 2010, at 93,534 tons, are already 8.8 per cent higher than the same period in 2009. Broiler meat imports are expected to reach almost 225,000 tons in 2010 or 17 per cent of local production.

Brazil is the most important trading partner for South Africa in terms of poultry meat, having more than 74.6 per cent (153,489 tons) of the import market. Brazil is followed by Argentina, with 15.2 per cent (31,358 tons) of the import market, Australia with 3.4 per cent (6,946 tons) and Canada with 3.3 per cent (6,866 tons). Broiler meat imports from the US in 2009 reached 2,184 tons or 1.1 per cent of total imports.

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 US imports from more than 31,000 tons in 1999 to only 344kg in 2005. Anti-dumping tariffs, ranging from ZAR2.24 per kilo to ZAR6.96 are currently imposed in addition to an import duty of ZAR2.20 per kg, effectively pricing US chicken pieces out of the local market (the anti-dumping duty on product from Tyson Foods is ZAR2.24kg, from Gold Kist Inc. is ZAR2.45/kg and from any other US producers is ZAR6.96/kg).

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 review under South African law for a separate case. However, the ruling is applicable on more than 70 products, including US 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 in a timely manner.

ITAC and SARS are now launching 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 court case will start on 31 August 2010. Effectively, what ITAC and SARS are attempting to do is to apply for a moratorium or suspension order to ensure that the anti-dumping duties are maintained for a further three years to allow ITAC time to complete reviews and for the suspension be made retrospective from 4 July 2005 so that there is no basis for any importer to argue for a refund or to enter goods without payment of anti-dumping duty until finalisation of the reviews.

On the other hand, meat importers and others – 12 products are involved – have asked for an interdict for relief from having to pay the anti-dumping duties, while the above mentioned court case continues. In the court case, they will support the finding that the current anti-dumping duties are illegal, and oppose the request for relief for three years or any period to conduct legal sunset reviews.

The court case could be drawn out indefinitely due to the different nature of the 12 products and the number of respondents. There is also a concern that whichever party loses the matter will be taken to the appeal court.

However, the current five-year anti-dumping duty on chicken meat portions imported from the United States expires on 26 November 2011. ITAC has notified all stakeholders that the last day for the submission of information is 21 April 2011. The South African Poultry Industry has already formally advised ITAC that it will be applying for the extension of the US anti-dumping protection so that the need for continued protection can be reassessed prior to its scheduled expiry. The South African Poultry Industry’s view regarding the anti-dumping duty against US poultry imports is this: “The duties are a justifiable response to an anti-competitive action by United States exporters and are substantively fair. Any attempt to use dubious legal technicality to overturn them will be vigorously defended by the South African poultry industry."

The United States Poultry and Export Council remains actively engaged in the anti-dumping case. Assistant US Trade Representative visited South Africa in May of this year and met with the Department of Trade and Industry (DTI) where she raised, among other trade topics, the issue of anti-dumping duties on US poultry imports with the Chief Director. The DTI officials urged US exporters to participate in the sunset review for relief and stated that during the last sunset review, US exporters failed to reply to information requests from ITAC, meaning the decision was based mainly on information from South African producers.

The South African poultry industry is also progressing with its investigation into Brazilian trade practices regarding poultry imports to South Africa. The South African poultry industry remains comfortable that anti-dumping action against Brazil for trade irregularities is likely to be introduced.

Further Reading

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August 2010