The Select Committee met on a virtual platform for a briefing on two Master Plans by the Department of Trade, Industry and Competition and the Department of Agriculture, Land Reform and Rural Development.
The Automotive Master Plan was the original Master Plan that had been launched in November 2018 but certain matters relating to the automotive industry that had yet to be resolved: a New Energy Vehicle Policy, a Motorcycle Policy and the issues related to used tyre imports and used vehicle imports into African countries. The regional market had major potential for SA-produced new vehicles but was undermined by the lack of a common automotive regime in the region and by a common African practice of allowing low-cost pre-owned vehicle imports from the East. Stricter emission standards in the major export markets meant that SA had to move quickly to greener engines or it would lose customers. The industry was showing signs of recovery from the devastation of Covid-19 lockdowns and localisation efforts were being pursued while competitiveness-enhancing initiatives continued and the New Energy Vehicle support framework was being developed. There was some, but not sufficient, growth of telemetry and a movement towards autonomous vehicles. However, empowerment levels were relatively low.
Members asked about the links between the Master Plan, the Motor Industry Development Programme and the Automotive Production and Development Programme. They had questions about energy-driven vehicles and about the possibility of a locally designed and produced South African branded vehicle. What was the involvement of the Transport sector in the Master Plan? Was there was a targeted approach to bring small suppliers on board? Should the automotive sector not be looking at low carbon emissions locally and on the African continent? Were there sufficient fuelling stations to supply and support electric cars? How were the programmes in the Automotive Master Plan being monitored and assessed? What funding was government putting in to ensure the success of the Automotive sector and did the value chain get funding?
Members asked why the presenters had not given a breakdown of the Automotive Industry Transformation Fund and how much went to each province. Could the German manufacturers not assemble cars targeted at the lower income groups in SA so that the country did not have to import those vehicles?
The Poultry Master Plan was signed in November 2019. The chicken industry had been beset by numerous challenges, including the cost of feed, barriers to exports as well as rising imports, mainly of bone-in chicken portions, from Brazil, the European Union and the United States. Recently changed requirements regarding evidence of residuals in chicken meat in the European Union and Hong Kong markets demanded a new approach to growing chickens and preventing disease. In response to the challenges, the Poultry Master Plan had five pillars in Phase 1, with commitments from stakeholders to achieve the necessary reforms: expanding and improving local production; driving domestic demand; driving exports; enhancing regulatory frameworks and to ensure compliance. The latest challenge to the industry was the outbreak of avian influenza. The Ministers of the two Departments Minister Didiza had launched the Agri-Industrial Fund with the Industrial Development Corporation (IDC) in March 2021. The fund would, inter alia, support the poultry industry.
Members asked about the 5% increase in production and whether small and medium-sized businesses were benefiting from the increase. Was there an attempt to manage the impact of prices on SMMEs? What was being done to break down the oligopoly in the industry? What was being done about the failure on the part of SA to meet biosecurity and health and safety requirements? How much was being lost as a result of the European Union Sanitary and Phytosanitary requirements that were not being met and what were the reasons for the delays in meeting those requirements? Was there a way of dealing with the avian influenza once and for all? What was being done about the cost of feed that had been identified as a challenge?
The Chairperson welcomed Members and staff. He welcomed the Department of Trade, Industry and Competition (dtic) and Department of Agriculture, Land Reform and Rural Development (DALRRD). He explained that DALRRD had been invited to the meeting as the Department worked closely with dtic on the Poultry Master Plan and was represented on the Poultry Sector Master Plan Council.
The leader of the dtic delegation was Ms Thandi Phele, Acting DDG, Industrial Development Division. She was accompanied by Stephen Hanival, Chief Economist and Advisor to the Minister of Trade, Industry and Competition, and Dr Botlhe Modisane, Acting DDG: Agriculture Production, Health and Food Safety, DALRRD as well as several Chief Directors and other officials.
Presentation on APP by the Department of Trade, Industry and Competition (dtic)
Ms Phele introduced the presentation to the Committee. She informed Members that in addition to dtic and DALRRD officials, there were colleagues from the Industrial Development Corporation and the National Empowerment Fund on the platform as those entities worked closely with the dtic by making funds available to industrialists and SMMEs.
By way of introduction, Ms Phele informed Members that the two Master Plans being presented were part of a suite of six Master Plans. The Automotive Master Plan made the greatest contribution to exports and was the biggest industry sector and impacted strongly on other sectors, such as steel and plastics. The Poultry Master Plan had the potential to have an impact on rural development and food security as well as exports. The Department would present the other Master Plans at a later stage: Sugar; Retail, Clothing, Textiles and Footwear; Steel and Metal Fabrication; Furniture.
She assured Members that the dtic was particularly responsive to developments in the sectors and adapted the methodology used in the Master Plans as required.
Mr Mkhululi Mushi, Chief Director: Automotives Unit, dtic, made the presentation on the Automotive Master Plan, providing details of the plan, the current situation, matters yet to be resolved and the interventions that the various workstreams were working on.
The major provinces involved in the Master Plan were in the Eastern Cape, KwaZulu-Natal and Gauteng. In additional a number of OEMs imported directly into the country.
Matters relating to the automotive industry that had yet to be resolved included a New Energy Vehicle Policy, a Motorcycle Policy and the issues of used tyre imports and used vehicle imports.
Challenges included the fact that South Africa remained a small market, i.e. less than 0.6% of the global market. The regional market had major potential for SA-produced new vehicles but was undermined by the lack of a common automotive regime and by pre-owned vehicle imports. Most African countries permitted the import of used vehicles, although SA did not, but used cars imported into the Southern African Customs Union found their way into SA. South African average vehicle local content was low at about 40% but the dtic was striving to raise that to 60%. Stricter emission standards in the major export markets meant that SA had to move quickly to greener engines or it would lose customers. There was some, but not sufficient, growth of telemetry and a movement towards autonomous vehicles. Finally, he noted that empowerment levels were relatively low.
He noted that the industry was showing signs of recovery from the devastation of Covid-19 lockdowns.
Localisation efforts were being pursued while competitiveness-enhancing initiatives continued and the New Energy Vehicle support framework was being developed.
The Chairperson thanked Mr Mushi for the presentation. He noted that the written content was very thin and that Mr Mushi had elaborated as he presented. The Chairperson said that it had to be the other way round. The written presentation should contain all information so that Members could discuss the details outside of the meeting.
Mr M Mmoiemang (ANC, Northern Cape) welcomed the presentation as it had given him a greater understanding of the development in the sector. He asked about the energy-driven vehicles. What was the involvement of the Transport sector in that area? DALRRD was on-board with the Poultry Master Plan. Was there an alignment between the Department of Transport and dtic on the Automotive industry? The misalignment of policies was sometimes a critical factor in not attaining goals.
He asked about the matter of localisation. The impact of the structural limitations in the country had inhibited the growth of the economy and had inhibited localisation. There might be a need for the Master Plan to have a targeted approach to confronting the automotive industry with a view to procure from local industry and to support growth. That could also assist in addressing the lobby for scrap metal localisation. There were opportunities for businesses that located themselves in the Special Economic Zones (SEZs). The challenge was that small suppliers that did not have access to the advantages of SEZ and it could lead to higher costs as the SEZs received preferential electricity supply. The dtic needed to talk to the small suppliers. Could dtic say whether there was a targeted approach to bringing small suppliers onboard? Those small suppliers often had limited administrative capacity, access to funds or skills, etc. The dtic had to show a will to ensure that the automotive vision and objectives were pursued and had the will to confront the inefficiencies of structures and systems.
Mr Mmoiemang said that there should be areas of transformation and support for entrepreneurial development and training. The support should also be differentiated. Support should relate to size, skills and experience. Did the dtic have a differentiated approach to support for small industries within the sector as that was necessary if one wished to create growth? But apart from those points, he noted that the Master Plan appreciated the urgent need for driven, meaningful localisation. It was important that the industry could grow beyond the borders and take advantage of the African Continental Free Trade Area (AfCFTA) agreement. Policy, plans and processes was not enough: there had to be a will.
Mr M Dangor (ANC, Gauteng) noted that low carbon emission was important for the export market and SA had to re-tool internally to do that. Should the automotive sector not be looking at low carbon emissions locally and on the African continent? Were there sufficient fuelling stations to supply and support electric cars as that could create a further problem in respect of electricity? The manufacture of parts and components for local use and for export became important.
Mr J Londt (DA) had noted the reference to infrastructure developments in the presentation in the form of a report on ports and rail efficiency. Could the dtic advise when that analysis of the ports and rail would be done? Would it be done all at once or could he be informed which provinces and ports would be tackled first? He was especially interested in the impact an upgrade could have on the metros.
The Chairperson had a number of questions. He asked for an explanation of the links between the Master Plan, the Motor Industry Development Programme (MIDP) and the Automotive Production and Development Programme (APDP). It seemed that the MIDP and the APDP were not particularly different from the Master Plan so there did not seem to have been much progress since those earlier programmes. 2035 was too far in the future. The Re-Imagined Industrial Strategy was about creating jobs immediately, not in 2035. When one saw what had been achieved, it seemed that it was still a process. The Master Plan was still talking about building a component industry; currently the components being made were just small things. The German vehicle makers, for example, probably would not want even the carpets for the vehicles made locally. Even Managing Directors came from Germany when a replacement was needed. He doubted whether they would want any components made locally.
He knew that in the Poultry Master Plan, a council monitored the implementation in the sector, but such a council was still being considered for the Automotive sector. It should have been the first sector to have a council. How were the programmes in the Automotive Master Plan being monitored and assessed? What funding was government putting in to ensure the success of the Automotive sector and what about the value chain – did that get funding? Did funds go to each company or to a sector?
The Chairperson had expected a breakdown of the Transformation Fund and how much went to each province. He had previously raised with dtic the problems with Buffalo City Municipality where Mercedes-Benz was located. Transnet had not invested in that port in 50 years. How did Mercedes-Benz operate under those conditions? Did dtic collaborate with Transnet? Regarding the AfCFTA, he asked whether cars were included in the agreement to stop African countries importing 2nd hand vehicles.
He recalled that the President of Azapo had been Minister of Science and Technology at the time when there was talk of electric cars, but he had heard nothing since. Was it possible for SA to have its own brand of cars?
He noted that there was no competition from China and South Korea because the locally manufactured cars targeted the high income groups. China and Korea targeted the lower income groups. Could the German manufacturers not assemble cars targeted at the lower income groups so that SA did not have to import the lower ranges of vehicles?
Mr Mushi responded to the questions, beginning with those posed by Mr Mmoeimang. New energy vehicles would be electric and hybrid vehicles. The dtic was working with the Department of Transport and the Department of Environment, Forestry and Fisheries on the Green transport strategy. The dtic was focusing on policy support to allow new energy vehicles on the road. The issue of alignment of policy was important and so that sector included the Department of Science and Technology and some educational facilities, e.g. the University of Nelson Mandela had inherited the machinery used by Optimal Energy when it was trying to develop a SA electric vehicle. The dtic and Eskom were looking at the impact of electric vehicles and one proposal was smart meters that would allow for the charging of vehicles during off-peak periods.
Regarding localisation, preferential procurement of light motor vehicles by the state was required to create demand. It was quite a complicated process but it was being explored. However, preferential procurement of buses was already in place and 80% of bus bodies had to be locally procured. The same requirement was being put in place for other vehicles, such as fire engines and yellow metal vehicles, such as front end loaders, etc. A lower percentage local content would be required in passenger vehicles.
In terms of the location of firms, large or small, Members would notice that a number of Automotive Hubs or Parks had been established, starting with the Rosslyn one, to supply the automotive plants locally such as BMW, Nissan and Ford, as well supplying the industry nationally. Being located in the IP, there were various efficiencies, such as training for such businesses. Nelson Mandela Bay Council was looking at an Industrial Park close to Uitenhage to supply to VW as that would improve efficiency. The most recent SEZ was in Tshwane and housed a number of suppliers to Ford, some from overseas, while some were relocating locally. In Coega and in Buffalo City there was a large number of component suppliers. Being able to supply just-in-time would promote efficiency and production in the motor industry. Some companies chose to set up outside of the parks or zones, such as the company that had chosen to set up in Berlin, Eastern Cape.
Mr Mushi had already indicated an incentive formed and led by dtic together with National Union of Metal Workers of South Africa (NUMSA), the Automotive Component Suppliers SA and the National Association of Automobile Manufacturers of SA (NAAMSA which looked at shop floor improvements. The dtic had a specific
focus on black suppliers and had assisted potential black suppliers. It was a finicky industry in which quality deviations were not permitted. The smaller companies had been trained by experts brought in from overseas, especially Japan, but there was no differentiated support between large and small firms in terms of financial support. The dtic did not exclude smaller component suppliers. If a company invested in productive assets, it got what was due to it.
In response to Mr Dangor’s question, Mr Mushi said that the idea was localise the production of electric vehicles as they were required for both overseas markets and the local economy. Currently, SA was importing electric vehicles, such as the Nissan, BMW and Jaguar electrical cars but the Master Plan intended to localise production of electric cars. The dtic was talking to Eskom about fuelling the cars but was also looking at solar energy. The SA industry was receiving support from companies overseas. The dtic was also looking at improved emission levels and greener energy sources.
The dtic was almost done with the studies on the infrastructure of rail and ports and that engagement would be done through the relevant working group that would present an appropriate intervention. The dtic was also working with academics and Transnet on the studies. The idea was that, during the coming year, work would be done on one of the areas. Once tangible work had been done, it could be presented to Parliament. The working groups met once a quarter and each working group was led by an executive from the automotive industry. Eskom, Transnet, etc were also engaged in the relevant groups.
The Master Plan was an overarching plan, something that the country had not had in the past. In the past, there had not even been an overarching policy supporting the sector. The APDP had four major elements of local production at four levels but did not talk about how transformation and skills development would happen, etc. The APDP was a key component of the Master Plan but there were many additional elements in the MP beyond the APDP.
The oversight structure of the Automotive MP was the Executive Oversight Committee and had begun working in 2019 with Executive oversight being the responsibility of the Minister of dtic. Around the table, sat the managing Directors of the OEMs, representatives from components supplies, the International Trade Administration Commission of South Africa (ITAC) and Labour and officials from the Department. The seven working groups reported to the Executive Oversight Committee. Stakeholders, such as Transnet, Department of Transport, National Treasury and so on, were members of the relevant working groups.
How much was government putting in? Mr Mushi explained that the automotive investment scheme was around R1 billion per year. It catered for investment support. Duties credit were given to exporters and the credits could be used by OEMs to offset imports. Certificates could be used against vehicles or components manufactured outside of SA. Suppliers for certain specific component used across all production lines were located overseas, for example, in Europe where the plants manufactured five times what they did in SA and those components would have to be imported.
Because SA had had very high import duties of up to 100% on assembled vehicles imported into the country, local OEMs would make small production runs, sometimes only two or three vehicles. Government was encouraging manufacturers to produce models that have high levels of sales, both locally and overseas, and use the duty credits to import small quantities of other models. That was why Mercedes Benz, for example, only made C Class vehicles in the country. A duty credit was not real money but the value of the rebates was based on quantity of vehicles and percentage of local content and could run into billions of Rand. However, it was only a duty credit and it was only valid for 12 months. Import tariffs for vehicles and components were now much lower and more stable at about 25%.
Mr Mushi had not prepared a breakdown on the Automotive Industry Transformation Fund (AITF) but he would provide a breakdown of the companies supported, where they were, how much support they had received, etc. The Fund was independently administered and had its own board. Two companies had been approved but quite a number of applications was in the pipeline.
Used vehicle imports was not easy to address because the leadership in some countries felt that the only way they could afford their citizens some degree of mobility was by importing used vehicles, which, in the main, came from the East because in countries like Japan, it was difficult to keep cars longer than three years because the taxes on them rose exponentially. That was to encourage production and to protect the environment. Those vehicles were exported for next to nothing and therefore highly affordable. Some countries were starting to limit used cars to those that were less than eight years old. So it was a thorny political issue but SA was having bi-laterals with a number of countries to encourage policy alignment.
Looking at the possibility of an SA branded car, Mr Mushi said that there had been a number of attempts at doing that. The SA mass market was dominated by global companies. There had, in the past, been a high rate of investment in the automotive industry but the cost of introducing a new model demanded an extremely high degree of investment. Mercedes Benz would be introducing a new C Class model in a couple of days and had invested over R13 billion in the past three years on that single model. Such an investment was difficult for South Africans. There was the transformation fund but the Mercedes Benz example suggested the kind of funding required to produce a vehicle.
However, there were two companies in South Africa manufacturing locally designed cars on a small scale. One company in Free State was producing a high-end motor sports vehicle. It was a low-volume high-end business with the vehicle selling for millions of Rand overseas. The other company was making a mini-truck that had off-road capabilities. The concept of producing a South African vehicle had not been rejected but it was a tough market and costs were high. When Optimal Energy was trying to develop South Africa's first battery electrically powered vehicle, the Joule, it had required R10 billion just to set up and there was no surety of success or profit.
In 1995, there had been an incentive programme for small vehicles with a price limit of R30 000 but there had been no uptake of the offer. For many local vehicle manufacturers, it was more lucrative to produce medium or luxury level vehicles. Countries such as India with its Tata managed on the back of cheaper labour and India had become known for producing the smaller, cheaper entry-level vehicles. The profit margins were low and the reliance was on volume, which was available in India, while the cost of production was low. The local companies could not make vehicles at such low margins and hence the reliance on luxury vehicles.
Mr Mushi promised to provide a written response showing the link between the Automotive Master Plan and the two previous programmes, MIDP and APDP and also information on the AITF.
[Ms Phele concluded the responses, although her connection was bad and at times it was not always possible to hear her]. She stated that dtic and other players accepted that transitioning to new technology quickly was important and to do that, they had to work in a competitive manner. In Europe, change in technologies was driven from an environmental perspective as well as a transport perspective.
The African Continental market was important for the industry but bi-laterals would have to be held and it would be important to talk about the second-hand vehicles, but dtic was looking at a positive programme that looked at regional value chains to address that challenge.
The timeline of 2035 was important because a new vehicle was implemented every seven years. In between that time, there were simply model facelifts. It was impossible to introduce new local content in the lifespan of a model and so the plan was to prepare for the 2035 range of models. One needed to introduce things timeously, while looking at sustainability.
She noted that Mr Londt had asked about infrastructure developments. For transport to be cost effective for OEMs, SA had to move from road to rail. It was an important conversation and the intention of the Master Plan was to be able to bring together the people who had an interest in the sector and a role to play. In the past, it had been dtic and its entities trying to get things moving but the Master Plan required an identification of problems by all role players as a collective and then they had to work though the issues. Ford was talking about exporting 200 000 bakkies and therefore needed an infrastructure to get them to the ports for export. Mercedes Benz, was situated very close to a port, but the port was not effective. The Master Plan meant that government had to work with the customers and ensure facilitation of conditions to make export more cost-effective.
The Chairperson requested a written presentation that would be much fuller and more detailed than the PowerPoint presentation. He did not want to wait until the next meeting. He explained why the Committee was so busy and could not meet too frequently.
Presentation of the Poultry Master Plan
Ms Ncumisa Mcata-Mhlauli, Chief Director: Agro-Processing Unit, dtic, presented the Poultry Master Plan.
The Poultry Sector Master Plan was developed in close partnership between government and a number of
stakeholders in the industry, including poultry producers, processors, exporters, importers and organized
labour. The process culminated in the official sign-off by all social partners during the 2nd South African Investment Conference in November 2019.
The chicken industry had been beset by numerous challenges, including the cost of feed, barriers to exports as well as rising imports, mainly of bone-in chicken portions, from Brazil, the European Union and the United States.
The Poultry Master Plan has five pillars in Phase 1, with commitments from stakeholders to achieve the
necessary reforms: Expanding and improving local production; driving domestic demand; driving exports;
enhancing regulatory framework and to ensure compliance and the latest challenge of the Avian influenza.
13 new contract growers had been provided with assistance to get established, including production inputs of animal feed and chicks; assistance with business plans; environmental impact assessments and off-take agreements. The Department has commenced farm audits to contract growers across the nine provinces.
Dr Modisane presented apologies from Mr Ramasodi Mooketsa but he was chairing the African Union meeting on Agriculture.
Dr Modisane briefed the Committee on Pillar 3 of the Poultry Master Plan: Driving exports. He spoke of the challenges in exporting chicken to countries such as Saudi Arabia, the United Arab Emirates and the European Union, which had recently changed requirements regarding evidence of residuals. Mozambique and Tanzania had not yet responded to overtures; Lesotho, Namibia and Botswana required health certificates but avian influenza had meant that there were restrictions on certain provinces. Hong Kong had banned certain municipalities affected with avian influenza. The United Kingdom was currently amending its regulations after leaving the European Union. Malaysia and Singapore required evidence of residual monitoring. He also had concerns about the Animal Welfare legislation. The Department of Health was introducing regulations regarding the thawing of products came in bulk as contamination usually happened when the bulk meat was thawed.
Ms Mcata-Mhlauli added that duties had been imposed in March 2020 after investigations conducted by ITAC. There was a concern about dumping of chicken in the country and ITAC was reviewing an anti-dumping application. She was positive about the future of the poultry sector, especially increasing the percentage of poultry exported.
Ms Phele stated that the dtic had to take into account the fact that avian influenza had broken out and that had impacted on some of the plans that had been drawn up for the sector.
Ms Mcata-Mhlauli asked Ms Elder Mtshiza, Chief Director for the Comprehensive Agricultural Support Programme, DALRRD, to speak on the Agri-Industrial Fund.
Ms Mtshiza stated that Minister Didiza had launched the Agri-Industrial Fund with the Industrial Development Corporation (IDC) in March 2021. Blended finance from the IDC could be accessed by poultry farmers. The funds aimed to support the development and expansion of the agricultural sector by assisting qualifying black producers/investees in developing, expanding, acquiring and integrating operations in prioritised value chains. The IDC had already received a number of applications for the funds.
The Chairperson noted that it was the first time the Committee had engaged with the Poultry Master Plan.
Mr Dangor said that Saudi Arabia was a large market but if SA was going to focus on that market, then the focus had to be on free range chickens. He had lived and worked in Saudi Arabia and he understood the conditions. People believed that their food should be grown naturally. He offered his services to the poultry industry, if his services were required. The same insistence on free range chickens applied to the United Arab Emirates and North Africa. Singapore and Malaysia, too, would only look at free range chicken. He also asked whether SA was still being blackmailed by Obama’s people when it came to chickens.
Mr Mmoiemang appreciated the presentation as he saw that the Departments were making tremendous progress. Pillar 2 of the Poultry Master Plan was somewhat problematic. He asked about the 5% increase in production and whether small and medium-sized businesses were benefiting from the increase. Regarding the drive on poultry prices, he asked if there an attempt to manage the impact of prices on SMMEs.
He had concerns about the failure on the part of SA to meet biosecurity and health and safety requirements. What was being done to resolve those problems?
He asked about the impact of tariffs on poultry prices in the country. Was it being managed? If there was not a major expansion in terms of exports, those tariffs could lead to a monopoly of the industry as it would retreat inwards and the ‘big guys’ would monopolise the sector. What was being done to break down the monopoly? The large producers dominated the industry. The emerging farmers were fewer in numbers and though small-scale producers were driven to engage; the issue of monopolies was a barrier. That oligopoly feature had to be addressed. What was being done about the cost of feed that had been identified as a challenge? What was being done about scale of production? SA was dominant in Africa but the fact was that SA could not expand beyond its original exports because of the requirements in respect of health factors. That affected the small and medium producers. 10 companies owned 90% of the market and the tariff duties would benefit only those big companies. How would that be mitigated?
The Chairperson had noted a slide in the presentation that indicated a drop in production and sales around October 2020. Why was that? There had been calls from civil society that, to boost domestic demand, chicken should be zero rated. Could the presenters respond to that? He asked about the demand for an increased tariff for bone-in chicken imports and for frozen chicken from Brazil. Could the Department comment?
The avian influenza had been a big problem in 2017. Was there a way of dealing with the avian influenza once and for all so that the country did not find itself in situations like that? That was why SA had been overtaken by countries like Tanzania. Some countries provided investment incentives for poultry, maize and soy farming. Why were there not similar incentives in SA? Other countries had banned imports to enable the domestic market to compete. How much was being lost as a result of the Sanitary and Phytosanitary (SPS) requirements that were not being met. Regarding the EU market, how much was SA losing and what were the reasons for the delays in meeting the EU SPS requirements?
The Chairperson noted that the supervision of the Poultry Master Plan was split between the dtic and DALRRD but how was the funding being split?
Ms Mcata-Mhlauli responded to the questions, beginning with those posed by Mr Mmoeimang. She did not have the figures for how much of the increased local production of 5% had come from small scale farmers but would consult the industry for details. The interventions by the industry included 13 contract growers that were being supported and they were contributing up to a total capacity of 40 000 to 65 000 chickens per chicken house or farmer. She had visited some of the small scale farms but would provide a breakdown of the figures in writing. She did know that the industry in its entirety produced 145 000 tons per month.
Pillar 4, as well as pillar 3, showed some of the work being done to address the monopolies in the industry by promoting black players in the industry. One action was to look at the B-BBEE status of the industry. The big players had already provided information about where there were opportunities. The dtic was not taking that work lightly as a great deal of work was still needed on vertical integration in the industry. 80% of the R1.5 billion set aside for the process had been spent by big players but big companies had to provide opportunities for small scale players. Black players were able to benefit from their inclusion in retail markets but there was a need to work on empowerment. There were no black players in the feed industry and black players could enter that space, especially as the IDC was willing to support players in the sector. That was a significant discussion in the Master Plan process. The intention was not for black farmers to be only growers but by 2030 the entire industry should be completely transformed. R200 million had been set aside for the transformation of the industry, as well as up and downstream business. That would break the monopolies. Transformation was a journey. The Departments had met with the industry captains and was looking for a captain to lead the transformation process. The B-BBEE Commission was also involved.
Ms Mcata-Mhlauli linked the questions relating to feed and incentives for farmers. Maize and soya feed accounted for almost 80% of production. She had seen a number of farmers closing down because of the cost of feed. 300 000 tons had to be produced locally. The current year had been a bumper crop according to MaizeSA and there would definitely be sufficient local feed this year which would also mean a lower price for feed. The MP wanted the industry to focus on the local manufacture of feed as the price had gone up over the past year. Currently quite a lot of feed was being imported and it had become essential for SA to produce its own feed.
Regarding a tariff increase, she assured Members that commitments had been made by the large players about supporting black players. The tariff issue was a thorny one. It was true that only a few companies benefitted from the customs duties and so the trickledown effect to small players was important in the MP process. Reciprocity would be very important when looking at tariffs on poultry. Dumping remained a thorny issue.
Dr Modisane responded to the question about biosecurity and what was being done in that regard. As the Department spoke to farmers, they were trained on biosecurity relating to existing protocols about how diseases should be kept out of flocks. In the current situation where there was an outbreak of a highly pathogenic disease, such as avian influenza, SA negotiated compartmentalised exports which was an accepted practice or SA exported heat-treated poultry which killed the virus. The most important thing was to train farmers to use approved protocols to keep diseases at bay.
He explained that avian influenza was a normal flu and flu viruses tended to re-combine and so each year, a new strain circulated. The Department was looking at a non-vaccination strategy. When the Department attempted to certify that the country was free from disease, the blood showed reactions to the vaccine. That was why the industry was moving away from vaccinating for avian influenza. Vaccinations could create an endemic situation so that the disease changed from being seasonal to becoming a year-round disease. Chicken and ostriches were not vaccinated.
Regarding the delay in gaining access to the EU market, Dr Modisane agreed that the market was open to SA. Ostrich meat had been exported to EU for quite some time. When SA had negotiated to sell ostrich meat to the EU, SA had been requested to come up with a residue control programme so that meat with certain drug residuals was not exported to the EU. When the EU had introduced legislation to prohibit growth stimulants, the ostrich industry had agreed to do away with growth stimulants in the ostrich feeding. The poultry industry still had not taken that decision, which was why it was necessary for the Department to check for residuals. If the Department picked up antibiotics in the meat, it would not be certified for the EU. The Department was negotiating with the poultry industry to come up with a split system so that chickens destined for the EU would not receive certain chemicals.
Dr Modisane stated that SA had submitted a health certificate for exporting products to trading partners where SA was seeking market access. SA started by presenting a health certificate and had to attest to the protocols contained in the health certificate. The trading partner would consider importing depending on its acceptance of the health certificate.
Ms Mcata-Mhlauli noted that she had not responded to the questions put by the Chairperson. Regarding the decline in production in October 2020, she stated that the period corresponded with the time of Covid restrictions. It was 5% of the tonnage down over 3 months, which was very little considering the restrictions on trading and in the workplace at the time.
She acknowledged that VAT-free chicken was a big debate as chicken was an affordable high protein so there was merit in the lobby, but National Treasury had enormous constraints at present. The lobby groups were also lobbying for zero VAT on a range of products in the food basket so it was, therefore, a discussion for another time, although it was important to ensure that chicken was affordable, especially chicken wings and feet. There was currently a dialogue with retailers in that regard.
Ms Mcata-Mhlauli appreciated the offer of help from Mr Dangor in respect of understanding the UAE market.
The issue around the Obama people and the import of chickens from the USA was a discussion for another day.
In response to the question about the role of each of the two departments when it came to the funding of the MP, she stated that the dtic had the agro-processing incentive scheme which supported the agro-processing value chain and poultry had been prioritised by the dtic as one of the industries to be supported. DALRRD had allocated R200 million to the poultry industry and IDC would support agro-industrial growth and transformation. Already the IDC had received several applications for funding in that regard. The Ministers of both Departments would be meeting with the IDC to have a look at some of its requirements for agro-industrial and transformation funding to ensure that those funds were accessible by the small scale players. The kitty of R200 million plus the dtic industrial incentives, plus the IDC funds came close to R2 billion. In addition, the large players would be contributing financially to the MP.
Ms Mtshiza added that black producers had acquired land, either via land reform or privately, but were not yet at a commercial production level. R1.2 billion was available in conditional grants via the provinces. That money was available for infrastructure, training and also mentorship. DALRRD was working closely with the South African Poultry Association (SAPA) that gave technical support while support was also given for EIAs. Such assistance could be obtained by speaking to a local Education Officer: there was one in each province.
Ms Mcata-Mhlauli stated that the response covered the question on subsidies. Quite a lot of work was being done and a lot of it was still work-in-progress.
The Chairperson asked why was there not a global health protocol. Why were chickens that were rejected by the EU being consumed locally? Why were the standards lowered for South Africans? If the EU did not allow chickens below a certain standard, then SA should not allow those chickens to be consumed either.
Mr Mmoeimang referred to the challenges indicated in the presentation. Why was it so difficult for SA to produce deboned chickens?
Dr Modisane explained that growth stimulants had been an international debate, led by the EU, and there had been a big argument between the USA and the EU on the use of growth promotants. The dtic represented SA at the World Trade Organisation and might be in a better position to give details of the debate. The majority of the chickens that the EU did not want because of growth promotants were said to be very safe. The growth promotants increased growth in a chicken by 15%, but if taken away from the feed of animals for two or three days before slaughter, there was not a trace in the meat. That was the argument put up by the USA. If SA wanted to export to EU, SA had to meet its standards; SA had to meet the laws passed by the EU parliament regarding health standards.
He added that, for chickens in particular, the biggest concern was the use of anti-microbials in production. The animals were being fed high quality soya and maize food at an intense rate. It was pushed into their intestines and the animals’ bodies could not cope with that amount and quality of food. That led to an unnecessary increase in bacteria in the intestines, especially as chickens do not have stomachs. The bacteria had to be kept down so that animals did not die because of the feeding rate. The Department of Health could probably explain better the rising resistance to certain key anti-microbials that responded to a very limited number of treatments. SA was very far behind in creating a policy in terms of restricting the feeding of anti-microbials and growth promotants. The industry said that there would not be enough food if the country moved too fast into that policy space but the Department of Health had requested Dr Modisane to obtain information from other countries in that regard.
He explained that the issue of producing bone-out meat had been raised in respect of the tariffs. Bone-out meat increased the value of the meat, however bones, although considered lower value, made a lesser contribution to SPSs.
Ms Mcata-Mhlauli was aware of the toe-to-toe issues with EU. She pointed out that SA was engaged in a similar process with China. She suspected that the anti-bacterial concerns were simply a delaying tactic by the EU. China wanted to bring its food into SA so the tariff policy had to be strengthened to protect the SA industry, especially as China could not export to the EU. As a closing remark, she stated that transformation was the main concern and the Ministers were leading that.
Mr Hanival had nothing to add
The Chairperson asked about the arrangement with the UK but had second thoughts and determined that it was a question for another day as it had been a long meeting. He released the departmental officials.
The Chairperson announced that an oversight visit would take place on 17 August 2021 and the next Committee meeting would be on 24 August 2021.
He noted that the Committee had already run 30 minutes over time but still on the agenda was a Committee Report of 25 pages on the dtic and a set of minutes. The report was not urgent. It was not for debate but to hold oversight over the Department.
Mr Mmoeimang suggested that the report and minutes be postponed to the next meeting.
The Chairperson determined that there was consensus amongst Members. He informed the Committee that he had been briefed about the oversight visit but the staff was still interacting with provincial officials so details were not final. The visit would be to the West Coast of the Western Cape and the Central Business District of Cape Town. The staff would inform Members of final details via the Committee WhatsApp group.
The Chairperson thanked the Members and staff that had been working very hard. The Committee would meet on 17 August 2021.
The meeting was adjourned.
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