Poultry producers to face tight margins in 2017

SOUTH AFRICA – South African poultry producers will be facing “tight margins” in 2017 amid competition from low cost imports, higher prices in feed supplies and the return of the US to the export market, according to a report.

Absa’s Agriculture Outlook for 2017 stated that poultry producers compete with lower priced imports from the likes of the European Union (EU), of which South Africa is a recipient of 57 000 tons of poultry per month.

In a report on the poultry and egg industry specifically, economists Wessel Lemmer and Karabo Takadi explained that these EU imports are unlimited and could grow in the future.

“According to the South African Poultry Association (SAPA) imports amounting to 10 000 tons of poultry meat replace a thousand jobs,” the report stated.

Fin24 previously reported that poultry imports for the first half of 2016 amounted 288 081 tons. The EU accounted for 45.5% and Brazil 43.2% of this amount. The remainder was mostly imported from the United States.

According to the African Growth and Opportunity Act (Agoa) agreement, South Africa is expected to import an annual limited amount of 65 000 tons from the US.

In an effort to introduce import protection, the South African government recently introduced a “safeguard duty” tax of 13.9% on frozen chicken legs imported from the EU. This provisional import duty will apply until July 3 2017.

The industry also has added pressure from increasing feed costs, which outweigh other input costs such as fuel, electricity and labor. “The price of feed increased significantly compared to that in the previous production season.”

The poultry to maize price ratio has been lower than the breakeven level of 8.5:1 since June 2015, stated the report.

Low egg prices are concerning, mainly due to the oversupply of eggs which is threatening profitability. “The current supply of eggs needs to decline in order for egg prices to rise.”  

But the report noted that egg prices have started to go up recently. 

The industry has been looking to develop an export market. “It is difficult to compete with a high-quality product in a low-end quality domestic market dominated by lower import prices,” stated the report.

However, there are developments in bilateral trade agreements between South Africa and Saudi Arabia.

The aftermath of Brexit should not impact the local poultry industry as relations between the United Kingdom and South Africa remain strong, the report stated.

January 6, 2017; http://www.fin24.com/Companies/Agribusiness/poultry-producers-to-face-tight-margins-in-2017-20170106

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