Poultry Industry: public hearings

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Trade, Industry and Competition

23 March 2017
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Due to rising concerns over the crisis facing the poultry industry, the meeting was convened to hear briefings from three poultry industry entities, the Department of Trade and Industry and

two trade unions. Issues covered in the presentations ranged from chicken dumping, duties and tariffs, export incentives, the closure of farms and the loss of jobs in the industry. There were a series of discussions during which Members engaged on the financial figures of each poultry entity, the rate of job losses and other pertinent issues concerning the sustainability of the local poultry industry.

The Department of Trade and Industry concurred that the sector was in a crisis and a range of further policy inventions were needed . As a result, an action-focused government task team had been established in November 2016 in order to establish a fact and data base for decision

making and engagement with key stakeholders, to identify possible areas for intervention, and to ensure proactive and timely interventions, including those by government departments.

Members raised several issues related to the industry’s submissions. They questioned whether the statistics on potential and actual job losses were factual. Were job losses the result of the dumping of chickens, or because of increased mechanisation? Had the drought also played a part in job losses? Was the industry competitive enough to withstand foreign imports? Why was the pace of transformation so slow? What was the impact of the brining of chickens? Were importers benefiting from the dumping situation? Were incentives needed to enhance exports?

It was agreed that timeous interventions had to be made by the government to ensure the protection of many jobs and the sustainability of the South African poultry industry. 

Meeting report

Department of Trade and Industry: Overview
Mr Garth Strachan, Deputy Director General: Industrial Development: Policy Development Division, Department of Trade and Industry (DTI) said the presentation would cover the status of the domestic poultry industry, as well as why there had been a crisis in the industry, and why it was important to support the industry and the trade-offs. The challenges that it had been facing was a result of market dynamics, since developed countries consumed mainly white meat and exported brown meat portions. The result was an increase in imports, mainly of brown meat portions, which the industry argued constituted an unfair trade practice.

South African Poultry Association (SAPA)

Mr Kevin Lovell, Chief Executive Officer (CEO), SAPA, said that the SA poultry industry was
indeed in a crisis. The International Trade Administration Commission ( ITAC) had determined that the industry was in an advanced state of distress and that the current cause of the distress had been because of the imports from the European Union (EU). and urgent action was required. This was about dumping, and not competitiveness. The collective efforts that had been taken to date had been inadequate. He suggested that there was a need to strengthen the regulatory framework in order to support the local industry growth and sustainability and to prevent rampant dumping. It had been said that it would be unrealistic to expect the EU and others to change their behaviour. The government-led task team had the role to develop measures that would stabilise the industry and to develop measures that would revitalise the industry, which was an on-going task. To stabilise the industry, the task team would need to require exporters to produce products in South Africa, and to reduce imports at least by one-half.

In 2016, consumption of poultry meat amounted to R36.67 billion, with eggs at R10.19 billion, resulting in a combined total of R46.86 billion. This was 3.7% below the 2015 level, and represented 18% of all agricultural products and 39% of animal products. The broiler employment figure was 6 420 lower than the previous year. Everything imported into SA was surplus to local requirements in the exporting country, and was a form of waste. As a result, none of this produce was made specifically for the SA market. In the Western developed world, 13% of the population did not eat all the parts of a chicken, which ultimately distorted global markets. This was the key problem, as waste was dumped in few unprotected markets such as South Africa.

Mr Lovell said that the European and United States markets, and some others, were structurally
imbalanced, but not SA. Europe had higher production costs than SA. Brazil exported breast meat to Europe, meaning they had a surplus of leg quarters to sell, and were forced to dump as a consequence of the developed western world’s market distortions. South Africans, however, ate all parts of a chicken, resulting in a structurally balanced market and made SA a cheaper producer than Europe.

The European Union (EU) and the United States (US) had been disrespecting the rule of law. Both had been found guilty of dumping by ITAC and the United States. Until a lawful forum overturned the rulings, the EU and US could not refute allegations of dumping, as they were dumpers.

Mr Lovell said that for every 10 000 tonnes poultry meat that was imported, SA would shed 1 069 direct and indirect jobs. Some companies had shed a few thousand jobs in total. Rainbow had retrenched 1 350 workers, including managers; Country Bird would soon close down their Mafikeng abattoir; Mike’s Chicken had shut down; and more than a dozen companies had been lost in the last few years. Chicken imports could not grow the economy, and were job destructive.

SAPA said the survival of the poultry industry, food security, the rural economy and the future of up to 13 000 workers and their families was largely in the hands of the government. If government could help the industry to survive, SAPA would contribute substantially to the future of the country.

Association of Meat Importers and Exporters (AMIE)

Mr David Wolpert, CEO: AMIE said the presentation would address the current status of the poultry industry and conditions that contributed to it, the challenges facing importers, and proposed mechanisms to address the challenges.

He said that if exports were not developed, 12% of the total market could be captured by the local industry. 53 000 tons of boneless breast was exported to the EU to meet the demand, and a total of 150 000 chickens would be slaughtered. However, for every 10 000 tons of meat SA imported, the country would lose 1 069 direct and indirect jobs. R4 billion had been saved in feed costs from 2016 to 2017. Brining was described as the “ultimate optimisation”’. He said the poultry industry could not be fixed without exporting. Production had not been decreasing, but rather mechanisation was replacing jobs.

The proposed mechanisms to address challenges in industry meant technology transfer agreements would have to be signed with world class producers like the EU, while the Department of Agriculture, Forestry and Fisheries (DAFF) could conduct activities with other government departments to gain access to markets. A full industry investigation by the DTI task force was advised.

Country Bird Holdings (CBH)

Mr Marthinus Stander, CEO, said that CBH had investments in eight African countries -- South Africa, Zambia, Botswana, Mozambique, Swaziland, Zimbabwe, Nigeria and the Democratic Republic of Congo (DRC). The company had 4 750 employees in SA and 2 750 in the rest of Africa.

Challenges in Mafikeng were that the abattoir had closed down in August 2016. 963 direct jobs and 1 605 in total direct and indirect jobs were lost.  The company desperately needed an enabling environment for big and small industry players. On the other hand, the Mafikeng branch had an opportunity to have a ground-breaking and progressive initiative that involved Country Bird Holdings (CBH), the North West Development Corporation (NWDC) and the Department of Rural Development and Land Reform (DRDLR).

CBH was asking the government to assist “now”.

The Chairperson asked the secretary of the Committee whether there were any black poultry farmers in attendance. She continued that transformation in the industry was needed. It was asked why the poultry entities in the past, when they were making a lot of money, had not bothered to save money “for a rainy day”.

Mr G Hill-Lewis (DA) suggested that there should be two rounds for posing questions, since everyone wanted to ask a question and the presentations had all been weighty.

The Chairperson said she did not see a reason for this since there would already be two rounds for posing questions which would work if each member used each their allocated time and not more. She
clarified that no one would be permitted to pose questions to the DTI as of yet, since it had merely given an overview of its presentation and would present its report only later in the meeting.

Ms P Mantashe (ANC) asked Country Bird Holdings (CBH) why it had said that doing business in other African countries was better than doing business in South Africa. Was this a result of legislation
enacted by the South African government? The impact of mechanisation in all three poultry entities was required. She enquired whether the industry was not able to compare the rate of
retrenchments before mechanisation was introduced, in order to prevent retrenchments.

Mr N Koornof (ANC) thanked the poultry entities for their balanced presentations and said that it was almost a “court in action, as there were always two sides to a coin”.  If he could summarize his contributions he would say “stop dumping”. The poultry entities all had to fight to stop dumping. SAPA, AMIE and CBH all had to start exporting. He advised them to approach the Department of Trade and Industry (DTI) to get incentives in order to export chickens. AMIE was asked whether there was an ethical duty on them to act, since it was importing dumped chicken.

Mr N Capa (ANC) asked if there was any beneficiary from dumping, and what the entities’ opinion on the issue of dumping was.

Mr Hill-Lewis asked for clarity from SAPA as to why there was no additional anti-dumping action, whilst it was undeniably true that dumping was bad.  SAPA was asked to further explain what it was about their systems that made them pay more for maize.

He had done a few calculations in regards to the brining percentages, as this had been ignored in SAPA’s presentation but was very relevant. Based on the court ruling which had limited brining to
15%, approximately 350 million kilos of chicken had been removed from SAPA’s turnover because
of the brining ruling. However according to the Department of Trade and Industry records of imports,
400 million kilos of chicken, nearly the same amount that had been imported to South Africa, had been removed from SAPA’s revenue numbers by the brining limitation. As a result, SAPA had not been able to sell brined chicken to the extent which it had in the past. He deduced that the brining issue was relevant, as it would have had a major impact on SAPA’s revenue business and numbers.  The Committee was often confronted with figures of job losses and often viewed these figures with a level of scepticism.  He noted that SAPA’s figures on job losses, as compared to the Department of Trade and Industry’s’ job loss figures, were exaggerated.  
Ms S van Schalkwyk (ANC) said she was partly covered by the previous questions, but asked what
the life span of task team was. She was concerned about the rate of mechanisation and chicken
dumping, and how it was related to job losses. 

Mr J Esterhuizen (IFP) commented that EU trade commissioner had already said that South Africa could not compete due to structural inabilities. He said that the South African government had to protect the country from harmful illegal chicken dumping.

Mr P Maloyi (ANC) wanted to know what contribution the Department of Agriculture, Forestry
and Fisheries was making to the task team, and whether it was participating fully. He asked SAPA whether the EU problem was the one causing all the problems in the country, or whether mechanisation was the problem, by replacing people with machines. He said asked for clarity on whether the poultry entities were saying that this problem could be solved through brining or exporting.

Ms A Steyn (DA) said the Committee had had this discussion before and she did not know why it
could have not been solved by now.  She asked for clarity on the problems of trading internationally, rather than in South Africa. SAPA was asked why the poultry industry had not grown in the last four years. She was confused by the drought presentation by AMIE, as the drought could not have been the only reason for causing the problem of job losses.

The Chairperson said it was useful that the Portfolio Committee on Agriculture was also present, even
 though its chairperson, Ms M Semenya (ANC) had submitted an apology.

Mr D Macpherson (DA) said that there was very little transparency in the poultry industry. He asked if
South Africa produced enough chicken to meet local demand. During the African Growth and Opportunity Act (AGOA) negotiations, the CEO of SAPA had been quite vocal about the dumping of American chicken in SA. However the data of the Department of Trade and Industry (DTI) showed that from the first quarter to the third quarter of 2016, the US had exported less chicken to South Africa during that time. It did not make sense that the broiler figure had remained constant while the employment rate had decreased. He asked why no poultry entity had filed allegations of chicken dumping at the World Trade Organisation (WTO) . 
Mr B Radebe (ANC) said to all three poultry entities that what was worrying was that the situation had deteriorated throughout the years. He asked why AMIE had discovered late that from 2011 to 2015, the DAFF had not filed an application for all these years. He wanted to know what the research team of AMIE had been doing all this time, and asked if “they had been sleeping on the job”. He wanted to know how all three entities did their research. On the issue of soya, he said that SAPA could have asked for a decrease in tariffs. With regard to consumers, he said the price of chicken had been increasing yearly, despite the dumping issue.
The Chairperson said she was trying to recall which one of the presenters had said that the company had been “hanging on by the teeth until the government assisted”. Given that AMIE sold directly to KFC, with no middle man, surely the company was making money. With what money had AMIE bought  a farm last year? She wanted to know if brining, as a relatively new approach, was unique to South Africa (SA) or if it was merely the percentage that was unique to SA. She asked all presenters to mention in their responses how much transformation they as poultry entities had initiated in the golden year.

Responses by SAPA, AMIE and CBH

South African Poultry Association (SAPA)

Mr Lovell said that what the Committee had to understand about exports was that exporting food was about exporting to people who were already eating a fixed amount of that food. In the developed world, meat consumption was flat.  He continued that the Recommended Dietary Allowance (RDA) did not have an optimum and a minimum value for the consumption of meat, which meant there was no evidence of whether the demand of the market would either increase or decrease. What was being exported was a result of the necessary demand, and not a replacement.

With regard to brining, the reason it was not discussed at length was because the regulations for brining came into effect in October, and the true effect of the regulation would be felt only sometime in 2017. He commented that it had not been ignored, but was rather not found as relevant for this discussion.  

Responding to Mr Maloyi, he said that his presentation explained that the current problems were from the EU, but SAPA’s experience of the industry was that if the dumping from the EU was halted, the EU would import its products from other parties. This was why, after SAPA had launched an anti-dumping campaign against three European countries, SAPA had safeguarded itself from further dumping from all European countries.

On the question of research, he clarified that in the first five years, various post-graduate students had been funded to conduct research into poultry. SAPA was also in the process of creating a long term legacy in poultry risk management.  A research in risk analysis would be funded by DAFF and the National Research Foundation.

He said that there had been one company in the Eastern Cape that had introduced mechanisation which led to retrenchment. SAPA, however, employed more people than European companies. He said that SAPA could not stop Europe from dumping, but instead could report them to the law enforcement agencies.

Incentives would make products like soya and maize cheaper for all users. The people who benefited from dumping were understood to be a combination of the importer and the retailer. He explained that the system that made consumers pay more for maize related to the former price discovery and the way that the elements that determine prices interfered. In 2013 there had been a situation in which some ships were arriving full of maize and other ships were leaving full of maize.

On the job numbers, he clarified that the table was made up of the census of three data bases of employers, and those who worked on a less regular basis. He added that importers did indeed take jobs.

In response to Ms Steyn’s question, he said SAPA could not afford to grow the poultry
industry at the moment. He said the drought had caused the consumers to suffer, as there had to be import price transfers. Anti-dumping duty was being enforced in respect of the African Growth and Opportunity Act, which allowed importers to dump a certain percentage of their chicken. However, this concession had not been fully utilised in the past 12 months.  Chicken prices had gone
up by less 23%.

Association of Meat Importers (AMIE)

Mr Georg Southey, Chairman of AMIE, said he would respond to the questions by briefly
giving context into the industry.  The Committee had to take account of how the poultry industry in SA was part of the global village and that AMIE had to take note of its global competitors. Most importers were fully integrated businesses that had investments not necessarily in agriculture, but in retail. A number of the importers were employing local people. He explained how after transport, dumping and retail costs, the products ended up not being cheaper for the consumer. It would be important to hear the retailers’ perspective about this industry sometime.

With regard to NVM, this was said to be an industrial product that was competing with huge capital investments and a huge labour component, as there were probably12-15 000 jobs dependent on this industry. He asked that the Committee consider the impact of NVM in job changes. 

Regarding the Brazil food scares, only two facilities from Brazil as an importer were approved. However, the Brazilian authorities were inspecting the allegations and this country was also suspended till further inspection. The safeguard was not being put in effect to protect the poultry industry.

Responding to the issue of brining, he said it was not unique to South Africa but was being exploited in SA to a greater extent than any other country in the world, since fresh chicken was not brined anywhere else.

SA had closed its border. but had done nothing to ensure that it would be globally competitive over time, which was a self-inflicted problem. AMIE would conduct a full market review.

Mr Southey said that dumping was an economic concept, and had nothing to do with the selling of rotten meat to SA. If dumping happened an investigation had to first happen. Investigators found that the Dutch poultry industry had amended its figures on dumping, which had impacted on the findings of the investigation thus far.

On the issue of reporting dumping to the WTO, he said it would be difficult for AMIE to take the issue to the WTO when no complete investigation had been conducted.

Country Bird Holdings (CBH)

Mr Stander was asked by the Chairperson where the money had come from to buy a farm in Nigeria if CBH had been going through bad times.

Mr Stander responded that the farm in Nigeria had made profits there, which had made it self-sufficient.

Mr Esterhuizen said that the losses in the poultry industry were not only from dumping, but also because of inefficiency.

Mr Hill Lewis said that it was sad that EU representatives were not present and had not been invited. He believed that SAPA’s figures on job losses were incorrect.

National Agricultural Marketing Council (NACM)  

Mr Christo Joubert, Manager: Agro-Food Chains, NAMC, said that the objectives of the Department, in line with the Marketing Act, No. 47 of 1996, were to increase market access for all participants, and the optimisation of export earnings from agricultural products. A clear distinction existed between comparative and competitive advantage. A region was said to have a comparative advantage above another when the net margin of its business system was higher due to factors such as cheaper labour, better climatic and soil conditions and distance to markets. Information about the markets could be enhanced and a case could be made whether dumping occurred in a market or not. According to the INFORUM South African Inter-Industry Forecasting Model (SAFRIM), there was no evidence that cheaper imports resulted in cheaper consumer rights.

In conclusion, the poultry industry was very important in SA. Chicken meat was one of the most favoured and most affordable protein sources for South Africans. It was highly integrated with other industries. The analysis showed that the SA broiler industry had to be safeguarded.

Congress of South African Trade Unions (COSATU)  

Mr Matthew Parks, Cosatu Parliamentary Coordinator, said that COSATU appreciated the Committee’s call for these critical public hearings and efforts in order to find ways to address the current challenges.  COSATU sought interventions on job creation, agricultural development and food security, rural development and consumer protection. On job losses, he said “SA could not afford to lose a single job”. Another impact on workers had been the rise in chicken prices for consumers. The immediate interventions that were proposed were tariff increases, anti-dumping fines, zero-rating VAT, SARS enforcement and health requirements. Furthermore, interventions were required for soya and maize costs, electricity costs, water costs and transport. It was also recommended that Transnet needed to assist with transporting poultry products at reduced rates, while subsidies were asked for in order to prioritise the development and protection of the agricultural sector. Transformation commitments in jobs were requested, in which businesses would be held accountable for having job plans that ended retrenchments.

In conclusion, COSATU said it welcomed the government’s efforts to address the situation, and that it was willing to play its role in developing comprehensive short, medium and long term packages to save and grow the sector’s jobs.

Food and Allied Workers Union (FAWU)

Mr Katishi Masemola, General Secretary, FAWU, said the union had always believed in a job-creating industrial strategy-inspired trade policy approach. The problem was in line with unfair trade, since the local chicken producers could not compete with EU chicken dumpers. As a result, FAWU had disproved the argument that South African chicken producers were uncompetitive. FAWU opposed damaging trade relations between countries, and even more so rejected an unfair trade agreement. FAWU wanted developmental content in trade agreements that the South African government entered into to defend local industries and protect and promote jobs and industrial capacity. The impact of EU’s dumping was said to lead to a “job loss bloodbath”. A proposed way forward was to raise tariffs and implement safeguarding measures, and to implement long and short term measures that would assist in up-scaling the South African poultry industry.

Concluding, FAWU said it needed a government that would move with the necessary speed to save the industry from decimation, as Ghana had once experienced at the hands of the EU.

Mr Hill-Lewis asked what COSATU’s experiences were in terms of increased mechanisation and brining. He also sought FAWU’s view on brining and brining practices, as well as  mechanisation.

Mr Koornof asked what the benefits of a zero rating in VAT were.

Mr Parks said that COSATU had 1.8 million workers. It agreed fully on the issue of
consumer rights, as most of its members were workers who were highly in debt and could not
keep up with inflation rates. The brining issue did not make sense to the workers, as it meant more water in their chicken and less of the chicken. Regarding mechanisation, the DTI had captured the data correctly, indicating that there was an opportunity to create jobs around it as well. They would, however, want to see the DTI ensuring that this happened in the poultry companies.  

Mr Joubert responded to Mr Hill-Lewis’s question by noting that brining was the most expensive
process in the industry. He said the consumers should rather be given an opportunity to decide for themselves what they wanted.

Chairperson said that it was not clear to her after she had listened to the presentations, whether SA was competitive internationally or not. She said that the Committee was not getting true facts.  

Department of Agricultural, Forestry and Fisheries (DAFF)

Mr Mooketsi Ramasodi, Deputy Director General (DDG): Agricultural Production, Health & Food, said the presentation would cover the integrated value chains of the broiler industry; global consumption; global trade; challenges in the poultry sector; transformation; competition issues; the effects of imports; responses to FAWU’s inputs; responses to SAPA’s inputs; Super Proton Synchrotron (SPS) and Technical Barriers to Trade (TBT) principles and current interventions in the poultry value chain.

He said that the challenges within the poultry sector included various key input cost issues, such as the increase in Eskom electricity tariffs, an increase in labour costs, the increase on the import pricing of maize and soya products, and earnings before interest and taxes. With regard to transformation, SAPA had a transformation agenda but had shown little progress in transformation within the poultry value chain. At the moment, imports accounted for just a quarter of local consumption, meaning that there was an opportunity for growth in the sector. He said that transformation was mandatory within the poultry sector -- “it was not conditional and was not a trade-off arrangement for bargaining.” Transformation was described as a basic requirement for cohesion within the sector.

For every 10 000 tonnes less meat produced, the industry would shed 1 069 direct and indirect
jobs. Many South African poultry companies were about to shed a few thousand jobs in total. 26 725 direct and indirect jobs could be created if SA did not import any chicken meat, excluding mechanically deboned meat and offal.  48 853 direct and indirect jobs could be created if SA did not import any chicken meat, including mechanically deboned meat and offal.  Regarding the measures proposed by SAPA, he responded that the matter of an export agency supported by government needed further deliberation. In regard to support to remove Super Proton Synchrotron (SPS) barriers , DAFF said a dedicated unit to conduct risk analysis was currently under consideration.

Mr Ramasodi said the South African broiler industry was the mainstay of agricultural production in SA, mainly for food security, job creation and economic growth. Furthermore, addressing the current challenges should have a measured approach, taking into consideration the  growth of the sector in totality.

Department of Trade and Industry (DTI)
Mr Garth Strachan, Deputy Director General, DTI, said the poultry companies had pointed to a surge in imports in 2015 and during the first half of 2016. This growth was almost entirely due to imports from Europe. With regard to tariff policies, he explained that several rounds of tariff increases had been experienced over the past decade for bone portions. Furthermore, tariffs had been increased but still remained below the WTO bound rate. Any tariff increase on chicken products from trade partners with whom a preferential trade agreement was in place required negotiations with those partners.

In January 2015, anti-dumping duties had been imposed. Countries affected included the Netherlands (duties of between 22.81% and 30.99%) and the UK (between 12.07% and 30.99%). The current anti-dumping duties would remain for a period of five years and could be further extended for another five years following a “sunset” review investigation that considered the likelihood that dumping and material injury would continue or recur if the anti-dumping duties were removed.

A number of countries were currently experiencing highly pathogenic avian influenza outbreaks and consequently, in line with the guidelines of the World Organisation for Animal Health, South Africa had placed a ban on imports of poultry from these countries. Currently no poultry products could be imported from France, Germany, Hungary, Israel, the Netherlands, Poland, Spain and the UK. DAFF had recently lifted the prohibition of imports from Denmark and had informed importers accordingly. Seven of the ten EU countries authorised to export poultry to SA could not currently export due to avian influenza outbreaks in those countries.

The sector was in crisis and a range of further policy interventions were needed. An action-focused government task team had been established in November 2016 in order to establish a fact and data base for decision-making and for engagement with key stakeholders to identify possible areas for intervention and ensure proactive and timely interventions, including those by government departments.

A number of trades-offs would be resolved, such as the industry protection/support in various forms, consumer prices and the impact on wage earners, support for increased investment by the private sector to raise capabilities and competitiveness, especially in sub-sectors such as mechanically separated meat. Transformation needed to be addressed to overcome low levels of transformation across the value chain.

Mr Hill-Lewis commented that the job loss figures were incorrect, and were the same as SAPA’s. He was disturbed to hear that there had been no written application to the EU.

Mr Macpherson said that the industry had not done enough to compete internationally, which was a concern. He also advised the DTI to have consumers on its task team in order to avoid a very industry-centred orientation. 

Mr Strachan said the work streams of the poultry industry were outcome based, and there was not sufficient progress on this. The DTI had not received any information from ITAC that there was abuse in the poultry production market.

The Chairperson commented that she hoped what had happened in the textile industry would be prevented in the poultry industry. She thanked all the presenters for coming, but noted that this conversation would definitely continue.

The meeting was adjourned

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