Impact and Response to Current Drought: Red Meat Producers’ Organisation; National Emergent Red Meat Producers’ Organisation; SA Pork Producers’ Organisation & SA Poultry Association briefing

Meeting report

South African Poultry Association (SAPA)
Dr Charlotte Nkuna, Senior Executive: SAPA, briefed the Committee on the effects of the drought on poultry producers and consumers. She said that maize was the biggest part of the feed cost and soybean was the second biggest part. Feed costs represented about 70% of the cost of chicken and egg production. Poultry meat and egg producers were not able to set prices. Customers set them. Drought was affecting poultry producers through cost increases.

The 2014 exports had increased the price paid by local users by approximately R450 per ton. If exports had been kept at the long-term export average volume level, the difference would have been close to R650 per ton. Exports were needed but the free market system could also lead to some undesired outcomes.

She said it was the users of maize who were suffering much more than the producers of maize. Users of maize were going to pay R9.7 billion extra for their maize in the 2016 period, compared to the 2015 figures. These extra costs were the result of additional storage costs to ensure maize supply; transport premiums due to the congested logistical supply chain of imports; labour; electricity; and changes in the rand. Changes in brining legislation would add about R3.50/kg to production costs.

When broilers slaughtered 1 billion birds, this led to a R3.6 billion increase in feed costs. Egg producers produced 8 billion eggs a year and this meant an additional R1 billion in feed costs. Brining regulations would add R4.5 billion to industry costs.

Because of high prices, sales might go down. For every 10 tons less of meat produced, 1 069 direct and indirect jobs would be shed. Some companies were about to shed a few thousand jobs in total.

Dr Nkuna warned that if current conditions persisted and input costs continued to rise for chicken producers in the country, this could have a dire impact on the industry. People were going to need an additional R7 to sustain themselves. She referred to a possible price increase for a 2 kg bag of Individual Quick Frozen (IQF) mixed chicken portions, which the majority of South Africans eat as a protein source.

Mr Kevin Lovell. Chief Executive Officer: SAPA, further warned that the drought, coupled with an increase in bone-in chicken imports from the USA, could cost between 20 000 to 30 000 jobs in the country. He suggested that the government should make certain chicken products, specifically the 2kg bag of IQF mixed chicken portions, VAT exempt. If this product was VAT exempt, one would take R4 or R5 off the price. He further said the government should control the export volumes of maize – used as feed for chickens – so that the country could build up a “strategic reserve” of the grain to avert the devastating impact of disaster situations in the agriculture sector.

He made the following recommendations:

control of exports;
the maize tariff not to be increased;
a state-funded insurance scheme for grain farmers to lower costs and reduce farming risks;
limit poultry imports;
remove the soya tariff;
tax concessions for users of maize;
remove VAT on chicken (IQF) to improve the affordability of the cheapest form of protein in the SA diet.

(Graphs and tables were shown to illustrate the effect of drought on maize, egg and chicken producers and consumers)

Mr Lovell said red meat producers had to keep the nucleus herds in good condition through the winter season. The current breeding season conception rate was very important. There was a need to up the percentage of calving and lambing to rebuild the national herd. If help were rendered, it would take two seasons to recover. If not, four seasons in the commercial sector, and never in the emerging sector. The emerging sector was much more vulnerable.
 

When looking at the risk analysis, he said it appears that the government is not having the right system to distribute drought relief funds to farmers from the National Treasury. He proposed that the Committee should consider a joint venture between government and producers for the distribution of funds.

He said the shortage of animals to slaughter, unavailability of feed, rising costs and a predicted drop in the conception rate would all affect the price of beef and mutton. There is a need to start putting measures in place to proactively try and get the food out to the people cheaper. Beef and mutton is going to go up by 12 to 14% this year.

He further said farmers needed assistance to the tune of R7 billion in the “best case scenario” which would entail adequate rainfall before May. In the “worst case scenario” it is predicted that farmers would require financial assistance totalling R16, 5 billion.

Mr Prinsloo estimated that SA would lose 5% of its 13 million national beef herd. He noted there had been a 28% increase in cattle slaughters in November and December.

In order to speed up the recovery of the livestock industry, he recommended that the government should subsidise the purchase of feed and fodder and provide an interest rate subsidy for herd rebuilding.

Finally, he noted that the Red Meat Producers’ Organisation (RPO) had outsourced a drought survey to the University of the Free State to determine and quantify the real impact of the drought in the livestock industry.This random survey involved 40 farmers and five abattoirs per province -- 30 commercial farmers per province, and 10 emerging farmers per province.

(Graphs and tables were shown to illustrate drought disaster areas, drought impact on commodities and exports, and the total fiscal outlay required in the 2017/18)

NERPO Presentation

Mr Aggrey Mahanjana, General Managing Director: NERPO, told the Committee that livestock is critically important for smallholder farmers and emphasis should be on areas affecting them. Drought has devastated the Black farming community. He proposed that the Committee should:

• request the government to make a long-term investment in water infrastructure. Water shortages have affected the rural folk and livestock farmers.
• Request the government to consider subsidising the salaries of farm workers. Livestock farmers have lost a lot and most animals did not conceive during the mating season because of drought. Even if rain could come, not much improvement would be seen.
• request the government to give support to smallholders and make use of organised agriculture organisations to deliver service delivery.
• request the government to consider a subsidised index-based insurance scheme in order to prepare for disasters so that farmers could claim from insurance companies, not from the government. There is a need to be proactive, and not be reactive.

He said the sector should invest in proper data collection methods. The current data is not talking to each other – from different levels of government to entities. Lastly, he said communication between the banks and industry players needs to be improved. These two are not talking the same language. The banks say there is no crisis because they look at the bank balance of commercial farmers while industry players are saying there is a disaster.

SAPPO Presentation

Mr James Jenkinson, Chairman: SAPPO, informed Members that the pork industry faced a year-on-year increase in the feed price of more than 70% this year. Small-scale farmers would be hard hit, and government intervention was urgently needed to assist them. Farmers continue to make a loss, and this would continue during 2016.

He said consumers are going to pay more for pork. It is expected that the price to the consumer would increase by at least 25%. The producer price is expected to immediately go up by at least 15%. The industry is expected to shed at least 10% of its jobs. Around 6% of pork producers had already closed shops as a result of drought. The price of maize which pork producers use for feed has increased by 70%.

Lastly, he said SAPPO allocates 20% of its total budget towards emerging farmer development. SAPPO has employed 3 specially dedicated project managers for developing farmers to assist with training, mentorship, business plans, and veterinary service.

Discussion
Mr N Paulsen (EFF) remarked that it appeared that the agricultural industry had not planned in time for the drought. Some sectors would not be adversely affected by the drought, though they would be affected indirectly. Seeing that maize prices were going to increase, he mentioned that ordinary people were going to be exploited by retailers. He asked if the import of chicken from the USA was going to reduce the price of chicken, and enquired what the quality of protein was from the USA, compared to the local quality. Why was it necessary now to suggest that the salaries of farm workers be subsidised, because the farmers were making money before the drought and some continued to use the “dop” system to pay the workers? What had been holding the agricultural sector back from approaching the insurance companies for an insurance policy in the event of conditions like drought? Would the fluctuation in the exchange rate going to lead to an increase in the production of pork?

Mr Lovell, responding on the quality of protein produced in the USA versus the one produced locally, said they were the same breeds of chicken and they ate the same feed. Even though South Africa might be getting old chicken from the USA, it was still safe and of good quality. If most chicken was not used in the USA, it was kept frozen and was given to the developing countries.

Mr Aggrey Mahanjana, National Emergent Red Meat Producers’ Organisation (NERPO) Group Managing Director, concerning subsidies of farm worker salaries, explained that Mr Paulsen was under the impression that the agricultural sector was making lots of money. It was the opposite. Farmers were living from hand to mouth. They only worked for the banks. It was even worse for smallholder farmers. He added that the Department of Labour was doing a sector determination especially for abattoirs and other areas.

Dr Pieter Prinsloo, Second Vice Chairman, RPO, pointed out that one needed to stop talking about the “dop” system because it was not practised by all farmers. The conditions of farm workers had improved a lot. One should rather try to improve communication between stakeholders.

Mr Paulsen replied that one needed to talk about it in order to kill it. One needed to deal with the past -- a capitalist system was not that holy. The “dop” system was still practised in the Western Cape, where farmers gave farm workers vouchers to buy alcohol and one discovered that the bottle stores were owned by the same farmers.

Mr Mahanjana, with regard to insurance schemes, explained there were companies selling insurance to farmers but very few wanted to deal with livestock farmers because they saw cattle in the same light as cash -- it was something that was easily stolen. That was why the RPO was making interventions for an insurance scheme. Farmers could not be left alone. In Europe, farmers were paid by the state even if the land was not producing.

Mr James Jenkinson, Chairperson of the South African Pork Producers Organisation (SAPPO), added that animals were not insured. The only things that were insured were the buildings and equipment. There should be insurance on maize, rather than pork. Concerning the exchange rate fluctuations, he said prices were set in foreign currency and then they were changed to local currency. The milk price was set in New Zealand and maize and soya were set in the USA. The price of pork produced locally was determined by exports.

Ms A Steyn (DA), wanted to find out at what point something could be done, because most farmers were going out of production and many jobs had been lost. She asked if the sector could wait until October as had been indicated in the adjustment budget. Was it the drought that was increasing the prices of chicken, or was there something else and people were just making excuses about the drought? She asked for clarity on the quality of meat that came from the 30 000 animals lost by farmers. She wanted to find out from the livestock organisations if they had approached the Land Bank, because it had a scheme in terms of which one did not have to pay taxes during the drought season. Did the livestock organisations have a system available for accurate data? She also asked for an update on job losses.

Mr Jenkinson said it would be hard for the industry to wait until October. Support from the government should have happened a long time ago.

Dr Prinsloo also mentioned that climatic conditions were different in different areas of the Eastern Cape. Provision should be made in this coming winter for the summer rainfall areas. There were soil conservation committees in some districts of the Eastern Cape and that was why the University of Free State had now been approached to help in the revival of the soil conservation methods.

Mr Mahanjana, referring to excuses about the drought, replied that there was inconsistency when it came to dealing with drought problems. For example, farmers in KZN would get more than what they wanted, and other provinces would get nothing. Consistency would be there if there was an insurance scheme, because the government would be involved and the process would include the farmers and the insurance company.

Dr Prinsloo added that the main problem was around the change in climatic conditions. There was not much drought in the Eastern Cape. There was a cattle study group in the Eastern Cape which was making good progress in terms of production. Things had changed now when it came to food production. Retailers were now buying land to produce their own crops. Concerning the quality of meat from the 30 000 dead animals, he explained that those animals had to be put down because they were affected by drought. They were not consumed by humans -- the carcasses were deboned and used for something else. That was the quality of meat he was referring to.

Mr Lovell responded on the Land Bank scheme, and said that the Land Bank had a profit retention scheme. One was taxed on the interest one earned. That was already practised in the USA. With regard to job losses, he said there were companies which had scaled down already, but their names would not be revealed.

Mr Paulsen proposed that the Committee invite the Land Bank for a presentation so that it could learn about schemes that farmers could benefit from. A lesson needed to be taken from this drought so that one could deal with it when it happened again.

Mr Jenkinson, regarding accurate data, mentioned that there were figures that farmers had to send through to relevant bodies. Maybe it was time for the process to be improved.

Mr L Ntshayisa (AIC) asked what channels were being used to make smallholder farmers aware that there was assistance available.

Dr Prinsloo said it was not a problem to reach them. They had approached the local government in terms of livestock improvement schemes, but these efforts became politicised in the process. Santam had made a provision for a relief fund. If the government could add something to the fund, that would be good. There were mechanisms in place to distribute a relief fund.

Mr Lovell further mentioned that sometimes it was difficult to know all the farmers in the country. They were all lost to themselves and do not belong to an organised body.

Mr S Mncwabe (NFP) wanted clarity on the difference between direct and indirect jobs in the pork industry.

Mr Jenkinson explained that direct jobs were jobs that were done around the production area, and indirect jobs were those jobs which involve slaughtering, distribution, processing, and selling.

Mr C Maxegwana (ANC) commented that drought was a problem affecting everybody. It needed a collective effort to ensure its effects were not disastrous. The Departmen of Agriculture, Forestry and Fisheries (DAFF) and some other departments had met and discussed ways of dealing with the drought and had published what could be done. It was important to consider what could be done, as recommended by SAPA. One should look at what needed to be done and compare that with what had been done already. Consumers, especially the poor, were affected by high prices in the same way the farmers were affected. This meant there would be no access to food. It was important to have a roundtable discussion on what could be done. He further mentioned that one should not rush and declare the whole country a disaster. Six provinces out of nine had declared a drought. In the Eastern Cape and Gauteng, there were municipalities that were affected by drought. The focus of the government should be on those areas before one rushed to the national declaration. Lastly, he wanted to know the meaning of IQF chicken.

Mr Lovell said IQF meant “Individually Quick Frozen” chicken.

Ms Steyn remarked that if the drought was declared a national disaster, this meant the DAFF had to deal with provinces. The focus should be on the affected areas. The main concern was the lack of coordination in distributing the relief funds.

Mr Lovell said there was a need from the side of the producers to assist the government, but they needed to know what was expected of them.

Mr R Cebekhulu (IFP) commented that communal livestock owners were not assisted by the relief fund. There was a lack of coordination in dealing with the relief fund from DAFF. He further wanted to know if it was true that no name brands were a result of an agreement between the retailers and farmers. He found it difficult to understand the radio advertisements that said one must buy SA products, yet in the supermarkets there were no name brands which were much cheaper than the branded ones.

Mr Lovell explained that most retailers all the world over used no name brands because that was good marketing for them, and that was why they tended to be cheap.

Mr Mahanjana, on the lack of coordination in dealing with the relief funds, said that this was frustrating and was not something new, whether it was within the Department or interdepartmental, or not.

The Chairperson wanted clarity on cheap European Union imports.

Mr Lovell said this was waste that the European Union did not want, and it sold it to developing countries.

Adoption of minutes
9 February 2016 Minutes
The Chairperson took the members through the document page by page.
Ms Steyn moved for the adoption of minutes.
Mr Mncwabe seconded her.
The minutes were adopted without amendments.
16 February 2016

The Chairperson took the members through the document page by page.
Mr Mandela moved for the adoption of minutes.
Mr Ntshayisa seconded him.
The minutes were adopted without amendments.
The meeting was adjourned.