AMIE Presentation

Portfolio Committee on Agriculture, Forestry and Fisheries

Cape Town13 March 2015

AMIE introduction and presentation on challenges facing the industry

• Introductions– David Wolpert CEO AMIE (ceo@amiesa.co.za) – Georg Southey (sub com) (georg@merlog.co.za)

• Context• Fallacy• Challenges• Opportunities

The Constitution of AMIE gives the Main Objects as:

•To promote and to protect the interests of the Members. •To deal with all matters that may affect the common interest of the Members. •To confer and collaborate with all bodies controlling and administering the Meat Industry in Southern Africa. •To convey views and recommendations to all concerned in order to improve the meat import and export business. •To seek and maximise official recognition of the Association. •To promote and safeguard the common interest of Members in their activities as Meat importers and exporters. •To represent Members in their dealings with the South African Government, SARS, ITAC, Veterinary Services, NAMC and other regulatory bodies. •To disseminate amongst it’s Members information on all matters affecting the Meat Industry. •To correspond and liaise with any similar Associations in other countries. •To promote, support or oppose any legislation affecting the rights or objects of the Association and its Members .

•To promote ethical business practice amongst all Association members and in the meat industry.

• Imports in Context:–Market Size– Import participation– Jobs– Domestic advantage– Current Duty Structures– SPS–Why Import

• Affordable alternatives• Consumer choice• Supplement local production

– Balancing supply and demand

– Food security

Market Size

• Market Size

– + 2 billion kg pa– +R 35 billion pa– Imports less than 10% by volume and value– Bone in Imports 2013: 144 million kg <7% of consumption– Water sold as Chicken +500 million litres pa– Big 5 >70% of Market– > 70% sold as IQF (individually quick frozen) (brined 30%+)

Domestic Production Vs Imports 2006-2013 Annex 2(expressed in kg)

livemass / bird 1.84 % brine declared :- 30

Slaughtered mass / bird 1.396

A B C D E F G H I J K L M

Annual birds prod * ** ***

Growth per annum 20% 60% brine kg IQF 40% Total Total Total Total Con- Imp % of

Local ind Total offal Injected kg added produceduninjecte

d excl offal incl offal Imports sumption cons.

2006 831 441 1 160 692 305 970 696 415 298 464 994 879 464 277 1 459 155 1 765 125 181 397 1 946 522 9.32

2007 4.03% 864 962 1 207 487 318 306 724 492 310 497 1 034 989 482 995 1 517 984 1 836 290 144 888 1 981 178 7.31

2008 6.83% 924 072 1 290 005 340 058 774 003 331 715 1 105 718 516 002 1 621 720 1 961 778 98 845 2 060 623 4.80

2009 0.80% 931 443 1 300 294 342 771 780 177 334 361 1 114 538 520 118 1 634 656 1 977 427 123 230 2 100 657 5.87

2010 4.01% 968 796 1 352 439 356 517 811 464 347 770 1 159 234 540 976 1 700 209 2 056 726 138 219 2 194 945 6.30

2011 1.04% 978 873 1 366 507 360 225 819 904 351 387 1 171 291 546 603 1 717 894 2 078 119 201 696 2 279 815 8.85

2012 1.28% 991 432 1 384 039 364 847 830 423 355 896 1 186 319 553 616 1 739 935 2 104 782 238 958 2 343 740 10.20

*2013 5.34% 1 044 420 1 458 010 384 347 874 806 374 917 1 249 723 583 204 1 832 927 2 217 274 209 049 2 426 323 8.62

23.34% 15.24%

* upto Oct 2013 (source SAPA)

Bone in cuts 4 year review

Bone in cuts simple analysis 5 yearsImports by origin by Month

Abnormal high imports due to dumping duty fears**dumping application initiated September 2013

2014 % 2013 % 2012 % 2011 %

Summary: Brazil 7,089 19,956 36,042 39,521 Non EU 11,618 7.39 27,809 19.21 48,728 30.14 63,900 50.87 EU 3 108,706 105,776 95,099 42,858 EU27 145,548 92.61 116,939 80.79 112,927 69.86 61,719 49.13

Total Imports 157,166 100.00 144,748 100.00 161,655 100.00 125,619 100.00EU 3 = NL,DE,UK

Non EU = all MFN nations source SARS

Bone in cuts 4 year review (monthly)

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total % of Tot

2014 BR 175 473 454 641 893 1230 734 383 1408 571 100 27 7089 4.51Non Eu 226 1073 1079 666 1376 1426 1968 818 1847 723 180 236 11618 7.39EU3 7797 6548 13723 13915 14948 17242 3603 2314 6642 8415 9127 4432 108706 69.17EU 27 8895 7108 14509 14734 16219 18611 4581 5055 11707 15450 17804 10875 145548 92.61Total 9121 8181 15588 15400 17595 20037 6549 5873 13554 16173 17984 11111 157166 100.00

2013 BR 1205 1664 2514 2761 2762 3378 1698 1528 1352 309 481 304 19956 13.79Non Eu 1493 1794 3084 3187 3983 5056 3747 1824 1959 632 589 461 27809 19.21EU3 7870 6005 8600 8718 9594 7257 5907 6407 12274 7426 16224 9494 105776 73.08EU 27 8977 6740 10231 9575 10488 7948 6662 6916 13068 8698 17342 10294 116939 80.79Total 10470 8534 13315 12762 14471 13004 10409 8740 15027 9330 17931 10755 144748 100.00

2012 BR 2117 2552 2112 3390 2762 2692 1863 2997 4204 4520 4594 2239 36042 22.30Non Eu 2606 2965 2633 4072 4831 3807 2757 3529 5474 5932 6181 3941 48728 30.14EU3 7986 8899 10177 9433 6110 3978 3548 6839 9367 12542 11383 4837 95099 58.83EU 27 9439 11106 12262 10881 7261 4667 4176 8173 10744 15129 12946 6143 112927 69.86Total 12045 14071 14895 14953 12092 8474 6933 11702 16218 21061 19127 10084 161655 100.00

2011 BR 5739 5936 5271 2287 3785 3488 3050 3521 1916 1434 1004 2090 39521 31.46Non Eu 8168 8868 7786 4417 6115 6053 5437 5636 3392 2532 2562 2934 63900 50.87EU3 1170 978 2163 1509 1375 1581 5361 4467 6163 6225 5902 5964 42858 34.12EU 27 1777 1655 3700 2722 2020 2254 8136 6228 8202 8643 8809 7573 61719 49.13Total 9945 10523 11486 7139 8135 8307 13573 11864 11594 11175 11371 10507 125619 100.00

• Jobs in the import sector

– Local Jobs direct 5,000– Indirect (making consumer ready) 10,000• Domestic product leaves highly mechanised factories in

Retail Ready packs. • Imported product arrives in bulk and has to be

converted into Retail Ready form. (the two do not compete)

These are real jobs which do exist

• Domestic Advantage:– Export Costs– Freight– Clearing Costs– Duty

– Domestic “retail ready”

– Imports SPS requirements

• Duty Structure:Five tariff Headings Current

• 0207 12 20 CCS 31%• 0207 12 90 W/Birds 82%• 0207 14 10 B/less 12%• 0207 14 20 Offal 30%• 0207 14 B/in 37%

• EU Free TDCA

• SPS:– All Import containers subject to export inspection

and certification– All import containers subject to inspection at Port

of Entry– All import containers subject to Laboratory testing• Bacteria and pathogens

– Import requirements amongst most stringent in the world

Fallacy

• Cheap Imports:– Customs declared values: are ex works prices– Add Freight and shipping costs– Add Clearing and import costs– Add Cold Storage costs– Add Importers overhead costs– Add Storage Costs– Add Transport and Sales Costs – Add Importer Margin– Add Conversion costs to make retail ready

• Current Scenario:– Chicken Leg ¼ land in store at R 21.00 excl Vat– Conversion and Packing– Add Vat and Margin– Selling Price R 30.00/kg to R38.00/kg

– IQF 2 kg land in store at R 19.50 excl Vat– Selling Price R 25.00/kg

– The Consumer is making a choice to buy the imported product

• Challenges:– Food “Insecurity”

– Market Access

– Brining

– Currency– Tariff Protection

• Market Access:– Exports• SADC• 3rd Countries

– No National Certification standard– SA Disease Status (Newcastle, AI)– Brining (most import countries do not want/allow brine)

– No National Strategy

• Market Access– Imports• High Sanitary requirements• Time to Process new market applications

– Capacity

• Priorities• Deemed Protectionist Policies

• Re-opening of closed Markets

• Brining:– Mainly Performed by large producers– Barrier to Entry for New Entrants

• Lack of access to technology and capital– Moral Theft– Increased Sodium levels (health concerns)

– Not Cheap Chicken but Expensive Water

– AMIE Supports Brining LIMITS of original proposed 4%

Nutrient dilution through briningThe Brine effect

Poultry Meat lab analysis:

Test Sample 1 Sample 2 Sample 3

Energy (kj/100g) 718 873 381

Avail Carbohydrates

(g/100g) 3,7 8,2 0,0

Fat (g/100g) 10,0 14,3 2,6

Moisture (g/100g) 67,4 63,2 79,3

Dietary Fibre (g/100g) 0.7 1,1 0,3

Sodium (mg/100g) 96 87 201

Notes:Sample 1&2 are not brinedSample 3 is brined

• Tariff Protection:

– Current Tariff Structure supports current flawed business model

– Model needs to change to persuade Global Competitiveness

Building a globally competitive industry

Currency as protection

Rand USD and Euro Currency depreciation

Year U$ yoy cumulative2011 6.632012 8.08 21.87 21.872013 8.45 4.58 26.452014 10.47 23.91 50.352015 11.57 10.51 60.86

Year Euro yoy cumulative2011 8.852012 10.46 18.19 18.192013 11.15 6.60 24.792014 14.39 29.06 53.852015 14.01 -2.64 51.21

What has changed since 2012?

• Feed cost reduction R 7 bn Rand pa• SAPA Return to great profitability• More stable labour relations• Currency Depreciation 27% - 33%• Avian Influenza

• Opportunities:– Exports• SADC• Niche markets

– Extract Best Value per cut– Wasted Costs• Nested Duties (savings of R 750 m p.a -SOYA)

Create a CIDP (Chicken Industry Development Plan)with all role players

• Thank you

Water sold as chicken every year twice the volume of imports!! Annex 3

• Imported Volume compared to Brining (2012)• Extracted from Farmers Weekly

AMIE Calculation of Waterless chicken

SAPA Quoted at SANCU AGMMt

Local Production 1 614 027

Total local Production 2 152 036

Water added (&sold as chicken) 538 009 =33% injection

Total imports 2012 238 000 <10% of consumption

Water as Percentage of imports 226.05 %

Local Chicken Industry Productivity disadvantage

(due to flawed business model) Annex 4

Processing costs and slaughter weight

A B C D E

local disadvantage Local disadvantage %

Number of Chickens 100000 100000 0 0.00

Live weight 1.84 2.25 0.41 18.22

Slaughter weight (Meat) 1.380 1.688 0.3075 18.22

Overhead costs 100000 100000 0 0.00

Average cost per bird 1.00 1.00 0 0.00

Average cost per kilogram 0.725 0.593 -0.132 -22.28

This is a simplified diagram of processing price disadvantage.

Coupled with product mix disadvantage there is a major

difference in yield and returns.

Addicted to Protection Annex 5

• History of protection 1997-current– 1997 B/In R 2.20 (2 years) (BTT BR4078)– 2001 USA Dumping– 2004 Duty Increase– 2006 USA Dumping Sunset Review– 2006-13 Brining (hugely profitable)– 2011 USA Dumping Sunset review – 2012 Brazil Dumping application – 2013 Duty review (non EU)– 2014 Avian Flu– 2015 DD EU (Holland, UK, Germany)