The poultry industry consists of three separate sectors: (1) The day-old chick supply industry (2) The broiler industry, and (3) The egg industry.
Broiler chickens are raised for meat i.e. fresh, frozen or value added (e.g. chicken fingers, saucy steaklets or polony). Egg layers or dual-purpose chickens are used for the production of eggs (they are lighter in weight than broilers, and so fattening cockerels from this second category with balanced feed bought in a bag is not as economically viable as doing the same with broilers).
The combined gross value of fowls slaughtered, eggs produced, including eggs for hatching, and ostrich feathers and products amounted to R49.312 Billion in 2015/2016, accounting for approximately 42.5% of the total gross value of all animal products. According to the South African Poultry Association (SAPA), the poultry industry provides employment, directly and indirectly, for an estimated 120,000 people throughout its value chain. The sector is responsible for providing much of the animal protein consumed in South Africa, with the largest proportion being consumed by the lower LSM categories. According to the Bureau for Food and Agricultural Policy (BFAP), chicken meat consumption in South Africa is projected to increase by 38% over the next decade, compared to 60% through the past 10 years. This equates to about 700,000 tonnes of additional poultry consumption by 2024, surpassing 44 kg per capita. Chicken is the cheapest source (in terms of R/kg) of meat in South Africa. However, in the past two years, the price of chicken meat increased in percentage terms more than that of lamb or beef, due to the increase in the import tariffs on chicken products and the sharp increase of feed costs.
Chicken consumption is higher than supply in South Africa. US Poultry and Egg Export Council president, Jim Summer stated that “While chicken production yearly in the country, consumption ballooned faster than production and this led to increased imports. The same with the global demand of broiler chickens, it is very high. In 2017, global production is forecast to increase 1 percent to record 90.4 million tons as expansion by the United States, Brazil, India, and the EU more than offset a significant decline by China. Robust foreign and domestic demand will bolster production for the United States and Brazil while increased domestic consumption will support gains by India and the EU. The 5-percent decline in Chinese production in 2016 on reduced supplies of imported breeding stock triggered by highly pathogenic avian influenza (HPAI)-related trade restrictions will accelerate to a 9 percent drop in 2017.
Exports and Imports:
Exports by major traders are forecast to climb 5 percent to record 11.4 million tons. While shipments by both top two suppliers (Brazil and the United States) are forecast to grow, Brazil’s increase will be higher because of its access to the Chinese market and its relatively weak Brazilian currency (real). Although the Middle East remains a key destination for Brazilian shipments with Saudi Arabia ranked first, China is expected to be Brazil’s leading growth market in 2017. Exports account for over 30 percent of Brazilian production, compared to only 16 percent for the United States and thus exports are critical to the vitality and growth of Brazil’s poultry industry.
The largest importer of broiler chicken is what is known as the Gulf Cooperation Council (GCC). The GCC was formed in 1981 as a political and economic alliance by six Middle Eastern countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). The region is a significant broiler meat market, a destination for over 15 percent of world exports in 2015 ($2.9 billion). Broiler meat exports to GCC countries have more than doubled over the past decade. Over half of the shipments are sent to Saudi Arabia while nearly a quarter goes to the UAE. Demand for broiler meat imports is strong for three main reasons: low domestic production, high GDP, and re-exports.
Production costs in the GCC region are high as farmers face arid climate conditions and scarce water supplies. This environment makes it expensive to regulate temperatures in chicken houses and provide water to flocks. Also, imported inputs, such as poultry vaccines, feed, and equipment, increase costs. The GCC governments have supported poultry production expansion, but competitively-priced imports fill the deficit in domestic supply and remain over half of total consumption.
Greater demand in the GCC region is primarily driven by high GDPs from large oil and gas revenues. Per capita broiler meat consumption in some GCC countries meets or exceeds U.S. levels. The region is also an economic hub for commodity transshipments to neighbouring countries. Businesses will import broiler meat products and profit from re-exporting them to the rest of the Middle East, the Former Soviet Union, and Africa. The UAE, Oman, and Kuwait are major transshipment points, and higher shipments pass through these countries as demand grows in the region. Saudi Arabia is an exception: the majority of imports are consumed domestically.
Brazil, the EU, and the United States are the top broiler meat exporters to the GCC region. Brazil is the largest supplier with 80 percent market share while the EU is second with 10 percent. The United States historically had less than 10 percent market share but factors in 2015, including the stronger dollar and highly pathogenic avian influenza (HPAI)-related trade restrictions, caused exports to decline further. However, shipments have regained momentum in 2016 and are expected to continue growing.
GCC consumers have traditionally preferred shipments of whole chickens over cuts. Whole chickens remain over half of total exports but consumer preferences are changing. During 2010-2015, the growth in cuts (76 percent) greatly surpassed the growth in whole birds (21 percent). Greater demand for cuts in the GCC region is driven by the expansion of the food service sector, increased product variety in the growing number of hypermarkets and supermarkets, and rising consumption of ready-to-cook products.
Given the distance to the market for many of the suppliers, nearly all products are shipped frozen. Brazil and the United States supply nearly all of the cuts to the GCC region and the EU has maintained a relatively consistent share of the whole bird market. As the market trends towards cuts, Brazil and the United States stand to gain market share in total shipments to the region.
All of the GCC countries currently require a Certificate of Islamic (halal) Slaughter. Halal is a term used to define products that are permissible and lawful to eat according to Islamic law. The products undergo certain slaughter procedures at the processing facility that must be overseen by a certifier recognized by the importing country. Our country has a growing population, with increasing income, and more people residing more and more in urban areas. These urban areas are also attracting larger supermarkets to accommodate the increase in wealth and offering greater variety of products to consumers. This offers a huge potential demand in the poultry products.
In the first eleven months of 2017, South Africa imported a total of 461 thousand tons of chicken. This is down by 7 percent when compared to the corresponding period in the previous year. During this period the Americas, that is, Brazil and the United States, were the key suppliers accounting for more than two thirds of the imports. Trailing the Americas was Europe which accounted for 15 percent of the market share (Agbiz, 2018).
The South African Market:
South African producers’ ability to compete with imported cuts will depend on the extent to which they are able to maximise carcass value going forward. Individually Quick Frozen (IQF) pieces represent the bulk of the domestic market, but imports of bone-in portions are likely to continue and strategies that reduce exposure in the IQF market will reduce the impact of such imports on profitability. The industry is also exploring the possibility of growing exports, a strategy that has been very successful for beef producers in recent years. In order to do so, competitiveness in the global context is critical.
Africa, which imports nearly 83% of the food it consumes, has a real chicken and egg problem. The continent is caught between pressure from imports in some countries and an inability to meet demand in others. Africa’s chicken crisis is an expression of overall weaknesses in its agricultural system. If Africa cannot raise its grain production it cannot expect to do well in increasing its chicken output.
The solution to Africa’s chicken crisis lies in upgrading agricultural systems overall. Here are the major limitations:
- Low-cost, high-quality feed. Expanding feed production involves investing in grain production, especially corn and soya. Research to increase efficiency and expand the range of feed sources will go a long way in helping to upgrade overall system.
- The lack of starter stock (chicks and broilers bred specifically for meat production). Improvements in this area will require better breeding and extension programs akin to those needed for crops. Nearly 84% of chicken in Kenya is based on local breeds that have low levels of efficiency in converting feed into meat.
- Disease control. Disease control is a problem for both crop and livestock producers and requires more investment.
- Poor infrastructure (especially energy, transportation and water supply systems) is a major barrier to the expansion of chicken production, especially in rural areas. A lack of cold storage facilities forces farmers to keep feeding their chickens instead of slaughtering and refrigerating them. They generally transport live chickens to markets, which raises logistical costs and increases concerns over disease transmission.
- The lack of credit for producers. Countries that provide credit for crop producers to purchase seed and farm input have the opportunity to extend their incentives to chicken production. Most African countries lack such systems and it is unlikely that they will introduce them for poultry farming if they do not have them for crop production.
So far Africa can hardly feed its people. But even worse, it cannot feed its chickens so that it can feed its people. The chicken crisis is yet another reason why Africa must focus on getting its agricultural act together. The crisis is a warning to African leaders: they need to wake up with the chickens and act in time. The poultry industry, with a total value of R46 Billion, is the biggest agricultural sector in South Africa (SAPA, 2018; BFAP, 2017).
In addition to its contribution to the nation’s Gross Domestic Product, the South African poultry industry remains an important contributor to job creation and employment opportunities, both in the formal and informal sector, with in excess of 80% of the industry consisting of SMMEs (Small, Medium and Micro Enterprises).
Chicken also remains the most affordable source of protein. How to balance the imperatives of producer and job creator vs more affordable food? Poultry producers in South Africa have been squeezed over the past few years. Energy and feed costs, and inexpensive imports have seen producer ranks thinned.
South African producers compete well on a technical basis, but are challenged when costs are included, a study by BFAP and Wageningen University in the Netherlands found (BFAP, 2017). The bulk of the increase in imports has been very specific cuts, imported duty free from the EU. These cuts of EU origin represented 38% of total imports in 2016 (the comparative figure was 2% in 2010). A second area where local producers are at a disadvantage is that competitors like the USA, Brazil and Argentina are net exporters of key feed materials like maize and protein meal and so have a significant advantage in the cost of feed (BFAP, 2017).
The poultry industry will benefit from a record South African maize harvest, and despite the challenges above continuing, BFAP projects increased profitability but not at levels previously seen, specifically 2004. The poultry industry consists of three distinct, separate branches, namely the day-old chick supply industry, the broiler industry and the egg industry. The Southern African Poultry Association (SAPA) represents both commercial and non-commercial poultry farmers within these three branches. This article focuses on the broiler industry and the egg industry, as the chick supply industry makes an input into both.
Dominance of the Broiler Industry:
The broiler industry continues to dominate the agricultural sector in South Africa as the main supplier of animal protein. Production The distribution of broiler birds (including broiler breeders) per province is as follows: North West province 24,9%, Mpumalanga 22%, the Northern and Western Cape 18,6%, KwaZulu-Natal 12,1%, Gauteng 8,2%, the Eastern Cape 5,8%, the Free State 5,5% and Limpopo 2,9%.
It is difficult for small farmers to enter into the retail supply chain, since it is looking for suppliers who can guarantee the demand at an acceptable price and quality. While some smaller producers can match the price and quality criteria, they are too small to supply the needed quantities. At present, emerging farmers sell their eggs to black-owned shops, Spaza shops, butchers, hawkers, restaurants, hotels and to a small extent to white traders (e.g. cafes).
The African population represents the best market opportunities for emerging farmers. Distribution channels to the low-income groups need to improve and are doing so. The distribution of eggs to township Spazas and door-to-door sales must be promoted. Catering companies, hawkers buying in bulk from producers, co-operatives, contracting and government tenders all represent possible markets. Many farmers do not adhere to the grading requirements as stipulated by legislation. For small-scale farmers to penetrate other markets it is important to begin following the regulations. Training in grading and packaging can open new markets for small-scale producers, especially on government tenders.
Black-owned co-operatives could be a vehicle for penetrating the formal marketing channels in South Africa. Through co-operatives, the produce of farmers can ensure larger supply of quantities, create a brand name, and have “muscle” to negotiate prices on behalf of farmers. The function of the co-operative can be to look for markets for members and also assist in preparing the produce (grading and packaging) and marketing it.