A quantitative and qualitative analysis of the South African broiler industry
Joubert, Jan Christoffel Nel
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The South African broiler sector is the largest agricultural sub-sector. It contributed R37.2 billion or 16.5 % to the total agricultural sector in the 2014/15 season (DAFF, 2016:76). The industry produced ± 962 million broilers in 2014 and ± 1 003 million in 2015 (SAPA, 2016b). The Department of Agricultural Forestry and Fisheries (2015:69) reported per capita consumption of 16,11 kg in 1993/94 and 38,5 kg in 2013/14 season, which constitutes a growth of 140 % over the past 20 years. The Bureau for Food and Agricultural Policy (BFAP) estimated that consumption would increase by a further 38 % from 2014 to 2024 (BFAP, 2015:74). Chicken meat remains an affordable protein, as against pork and beef (Lovell, 2014a:12). The industry employs ± 10% of the total agricultural workforce (IDC, 2016:66). From a supply and demand perspective, South Africa consumed 2 127 389 tonnes of broiler meat in 2015 (South African Poultry Association (SAPA), 2016a: 1). The local production by commercial and subsistence farmers, together with imports are as follows. Commercial farmers produced 1 720 155 tonnes in 2015. Importers, retailers, and wholesalers imported 457 374 tonnes. Subsistence producers produced 69 334 tonnes. Live sales from depleted stock comprised 71 885 tonnes, and exports formed 65 815 tonnes (SAPA, 2016a: 5). The trade in broiler meat of certain cuts and mechanically deboned meat (MDM) is a vibrant and active market. The value of imports increased by 139 % from R1,5 billion in 2010 to R3,6 billion in 2015 (SARS, 2016). World broiler meat prices decreased between 30 % and 40 % from 2014 to 2016 (Unnerbary, 2016). The northern hemisphere prefers ‘white’ chicken meat (mostly breast meat). Because of this preference, research and development in the USA and EU poultry industries have resulted in larger chickens produced. This phenomenon results in surplus production in the specific markets of brown meat (drumsticks and thighs), which needs to be sold in other global markets. Increased imports into the South African market were a result of this trend, while trade agreements with the EU and the USA aggravated the position in South Africa for the local producers (by allowing increased import volumes into the domestic market). The trading environment also changed for the USA when Russia closed its borders to imports from the USA. Brazil is the biggest trader of broiler meat in the world, with the USA as the biggest producer of chicken meat in the world. Both these countries have competitive supporting industries regarding maize and soybeans with much higher yields than South African. The local poultry industry contributes significantly towards the agricultural sector and food security in South Africa. Government strives to utilise the broiler industry as a start-up business for small-scale farmers entering farming. However, producing broiler meat for international markets, and on a competitive basis, requires high managerial and technical skills. In the South African case, the producer also must need to manage relative volatile feed prices, compared with international competitors. The two major ingredients for feed in the South African poultry industry are maize and soybeans, and both the prices of these commodities are relatively more volatile in South Africa, compared with international competitors. The movement of feed prices in the industry creates much uncertainty, which can be attributed to a few factors. South Africa experiences a very highly volatile maize market. The price of maize can swing from import parity (in a drought situation) to export parity, in one season. This swing can easily be more than R1 000/ton within one production season. A volatile South African exchange rate also adds to the total feed price volatility. South Africa does not produce enough soybeans or soybean meal and need to import the shortage. Local soybean production constitutes to about 30 to 40 % of total meal usage, although the local production varies, depending on weather patterns. This research did not focus on the production and the substitution effect of maize and soybeans. However, the comparative advantage of the broiler industry could improve if South Africa can produce enough soybean meal for its demand. It can also stabilise the feed price. The goal of this study is to analyse the South African chicken meat market to determine if production can be justified regarding competitive and comparative advantage. It is important to note that the comparative advantage is measured regarding the total international market. The researcher used various methods to analyse the industry and to identify the constraining and enhancing factors in the South African broiler value chain, amongst other things. The study also evaluates the advantage and benefit of protecting the sector against large and relatively cheap imports. The local constraining factors were identified to make the industry internationally competitive. The researcher employed various methodologies to quantify and understand the relationships of the broilers industry in the wider South African economic context. The results of this research will assist policy makers to formulate a more balanced policy whilst considering both the consumer and the producers in finding an acceptable balance in the interest of the broader South African economy.