The Broiler Organisation

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BROILER ORGANISATION COMMITTEE CHAIRMAN’S REPORT 2010 - PRESENTED BY | VOORGELÊ DEUR MIKE DAVIS

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MEMBERSHIP

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Membership of the Broiler Organisation currently stands at 37 producers. Based on our SAPA statistics this suggests that broiler producers representing 71% of broiler production are members of SAPA. A concerted effort needs to be made to encourage more members to join our organisation. The Broiler Organisation Committee has approved a category of membership for contract growers, and these growers are encouraged to become members of the organisation.

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COMMITTEE

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The term of office of the committee is three years and the committee members shall serve terms of three (3) years. The term of office of the current committee expires in 2011. This year members were again co-opted to make the committee as representative as possible.

The Broiler Organisation Committee therefore presently consists of the following members:

1. Theo Delport (deputy chair | ondervoorsitter)
2. Paul Apostolides
3. Steve Steenkamp
4. Bonga Mavume
5. Jacques van Niekerk
6. Dr Louis Theron (co-opted | gekoöpteer)
7. Deon Fourie (co-opted | gekoöpteer)
8. Mike Davis (co-opted | gekoöpteer).
9. Izaak Breitenbach resigned in February 2011.

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INDUSTRY OVERVIEW | OORSIG VAN DIE BEDRYF

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The exceptionally high and growing demand that categorised 2006 to 2008, did not continue through to 2009 and 2010, with SAPA estimating an increase of 4% in total broiler production from 2009 to 2010. The year has seen further expansion in the poultry market in South Africa, as producers gear themselves for future demand and to capitalise on economies of scale, and the advantage that volume brings to tight realisations.

Chicken remains an affordable protein source relative to other meat-protein sources.

The average producer price for beef abattoir selling prices for class A2/A3 was R24,02 per kg in 2010, while the beef abattoir selling prices for Class C2/C3 was R19,83 per kg. The average price for 2010 for pork, all classes, was R14,82 per kg. In comparison with the other types of meat, the total realisation (less all discounts, rebates and secondary distribution) broiler producer price was R12,28 per kg in 2010.

The poultry industry (including meat and eggs) continues to dominate the agricultural sector in South Africa, and is the main supplier in kilogram and protein terms, as more poultry products are consumed per annum than all other animal protein sources combined. In terms of consumption, beef is second. Poultry has shown an upward trend in consumption over the past five decades.

The per-capita consumption of poultry meat was 32,96 kg per annum in comparison with beef at 17,65 kg, pork at 4,58 kg and mutton and goat consumption combined at 3,16 kg per annum in 2010. Egg consumption was 8,48 kg per person per annum in 2010.

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VOLUME AND GROWTH

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BROILER BREEDER PLACEMENTS

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Day-old parent pullets placed

Continuous growth in day-old broiler parent placements has been recorded over the past five years. The rate of increase in parent placements has, however, slowed down in 2010 and the recent trend indicates that it will level off in 2011.

The total day-old parent pullet placement for the year 2010 was 9,154 million pullets. On average, 176 000 pullets were placed per week during 2010. The 2010 average placement per week was 4 700 higher (+2,8%) than the corresponding placement in 2009.

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Broiler breeder flock | Braaikuikenteeltrop

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The projected broiler breeder flock of 6,488 million hens for December 2010 was 168 202 higher (+2,7%) than the December 2009 flock.

On average, 6,477 million broiler breeders were in production during 2010. This represents a year-on-year growth of 245 000 (+3,9%) in the breeder flock.

The projected April 2011 breeder flock is 6,578 million hens. This will be 8 114 higher (+0,12%) than the April 2010 breeder flock.

Broiler chick placements

A total of 1,032 billion day-old chicks were placed in 2010; 47 million more (+4,8%) chicks were produced in 2010 than in 2009.

It is forecast that on average 19,966 million broiler chicks will be placed per week during June 2011. This will be 89 533 chicks less (-0,45%) than the average weekly placement in June 2010.

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BROILER PRODUCTION

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Industry growth

The projected broiler production for the last quarter of 2010 is 18,903 million broilers per week. This number will be 1,297 million higher (+7,4%) than the production in the corresponding quarter of 2009.

Average weekly broiler production for 2010, at 18,579 million, was 716 000 higher (+4,0%) than the 2009 average. Broiler production amounted to 968,8 million slaughtered in 2010.

Over the first six months to June 2011 an average production of 18,630 million broilers per week is forecast. This will be 472 000 more (+2,0%) than the corresponding production in 2010.

A slight downswing in broiler production is forecast for the first quarter of 2011. An upswing in production can, however, be expected in the second quarter of 2011.

Forecasts indicate that broiler production in July 2011 will be 18,861 million per week. Compared to July 2010 this represents an increase of 27 164 (+0,14%) broilers per week.

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PROSPECTS FOR 2011

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1. Between 2005 and 2009, day-old parent placements increased at a rate in excess of 5 percent. During 2009 and 2010, the rate of increase in day-old parent placement decreased to approximately 2 percent per annum. Recent trends indicate that the parent pullet placements will level off in the first half of 2011.

2. A total placement of 9,244 million day-old parent pullets is projected for 2011. This will be a slight decrease of 17 000 pullets (-0,2%) compared to the total 2010 placement.
3. A potential number of 1,035 billion broiler chicks could be produced in 2011. This will be 3,896 million more (+0,4%) than the total number of broiler chicks produced in 2010.
4. An increase of 9,450 million (+1,0%) to a total number of 978,246 million broilers slaughtered is forecast for 2011. On average, 18,760 million broilers will be produced per week.

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PER-CAPITA CONSUMPTION

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1. The per-capita consumption of poultry meat was 32,96 kg per annum, with broiler meat the main contributor at 32,0 kg per person per annum in 2010 (including culls). The consumption of broiler meat has been met by increased imports (+15%) and industry growth of +4%. It is expected that producer expansion should meet increased demand.
2. Part of the rise in chicken-meat consumption the last few years resulted from the broiler industry's response to the demands by consumers and food service operators for value-added, brand-name and convenience products, and not only from the commoditised volume products. Chicken producers are in an industry that is in demand. People want chicken meat and continue to consume it, and the per-capita consumption shows that there is still opportunity for tremendous growth in demand for chicken products. As a comparative measure, the per-capita consumption in Brazil and the United States is in excess of 40 kg. As imports make up a sizeable percentage of consumption, this suggests that we can safely grow by 50% in volume terms.

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INTERNATIONAL MARKET

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BROILER MEAT: 2011 FORECAST OVERVIEW PRODUCTION

Production is forecast up 2 percent to a record 76.2 million tons and is supported by record levels from all top producing countries. Strong domestic demand and, to a lesser extent, rising exports, will fuel production growth in many countries, as [will] the absence of major disease outbreaks. However, as 2011 progresses, rising grain prices may adversely impact production. “Production by the world’s leading broiler producer, the United States, is forecast less than 2 percent higher at 16.6 million tons, although that rate of growth may be tempered by high feed grain prices. Stronger domestic demand and recovering foreign demand will support expansion. US per capita consumption continues to rebound, building on the recovery that began in 2010 with tight supplies of red meats, particularly beef; consumers are expected to shift to lower-priced meat products like versatile broiler meat.

China’s production is expected to increase almost 4 percent to 13 million tons as strong demand and high prices encourage expansion. However, that expansion may be constrained by high feed costs, particularly corn, which accounts for about 60 percent of broiler feed. Fewer outbreaks of highly pathogenic avian influenza, more standardized operations and changing structure will improve productivity.

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Growth Continues at a Slower Rate

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Brazilian production is forecast up on both strong domestic and foreign demand while Mexican production is up on strong domestic demand. Per capita consumption for both countries is expected to rise, accounting for a larger portion of total meat consumption. Price competitiveness and improved purchasing power will bolster domestic demand. Higher production levels in Mexico will also be fuelled by greater use in processed products, although rising grain prices may slow growth, as feed accounts for a major portion of costs.

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Government Interventions Affect Industry

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Russian production is forecast to continue expanding, although more slowly than in recent years. Rising feed costs are expected to squeeze returns, although the government’s commitment to support long-term production expansion will likely assure continued profits. Large enterprises dominate the industry and government loan subsidies will continue to favor them over small producers.

Production in Argentina is forecast to jump 9 percent, as a sharp decline in beef production, generating a shortfall in animal protein supplies, is expected to cause an increase in poultry demand.

“Thus, rising broiler meat consumption would capture a growing share of total meat consumption. As broiler meat is not subject to the same production and export regulations constraining the cattle sector, production can also expand to benefit investors seeking export-orientated revenue.

EU production is forecast slightly higher as elevated grain prices constrain growth.
Rising domestic, rather than foreign demand will support marginal production gains. The full impact on the industry’s competitiveness due to recently implemented animal welfare regulations, which limit stocking density, is yet to be assessed, but generally expected to adversely affect profits.

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TRADE:

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“Exports are forecast 3 percent higher to a record of nearly 9 million tons due to a reduction in SPS barriers, as well as economic growth and recovery. Expansion is fuelled by demand from virtually all major and emerging markets, and both the United States and Brazil will benefit as major suppliers.

“The United States and Brazil are forecast to account for over 70 percent of exports by major traders. The combined share of trade by these two exporters is expected to be slightly less than 5 years ago.”

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United States and Brazil Grow at Same Pace (3 Percent)

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US exports are forecast at 3.0 million tons, reversing the recent downward trend.

• The strongest growth is expected in shipments to RUSSIA as the United States is expected to fill its tariff rate quota allocation set at 446,400 metric tons. Despite strong domestic production, its imports are expected to rise on resolution of SPS issues.
• As its main supplier, the United States will also benefit from a forecasted rise in Mexican imports. Raw material demand from the food processing industry is growing as consumption patterns mature due to rising incomes and urbanization. 

Brazil remains the leading exporter, with growth expected at 3 percent, relatively on par with the past three years.

• Growth is primarily due to robust demand by Middle East markets as rising incomes and economic expansion stimulate imports by Saudi Arabia, the United Arab Emirates and Iraq.
• Shipments to China are likely to increase, but are not expected to fully replace US product displaced by anti-dumping and countervailing duties.
• Emphasis on emerging markets will continue to fuel expansion. 

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EU Exports Stagnate While Argentina, China, and Thailand Rise

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EU exports are forecast to stagnate due to lack of competitiveness and relatively tight exportable supplies.

Robust Argentine growth continues unfettered as exports are not constrained by government restrictions. However, increased shipments are mostly to [Venezuela where a meat deficit exists].

China and Thailand are expected to expand exports, particularly to other Asian markets. Shipments are largely limited to prepared/preserved products because of SPS restrictions.

SOURCE: USDA, United States Department of Agriculture, Foreign Agricultural Service October 2010

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LOCAL TRADE

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The origin of imports into South Africa enforces this picture with 73% of the poultry imported into South Africa originating in Brazil. Brazil remains a threat to world poultry due to the exchange-rate dynamics, competitive advantages in terms of climate, feed costs, economies of scale and government support.

The annual poultry imports for 2010 into South Africa were 265 791 tons, which constituted a 15% increase or 34 488 tons more in comparison with the total poultry imports for 2009. Broiler meat accounts for 90,4% of all poultry imports, an increase of 1,4% in comparison with 2009, the balance largely being turkey products.

The value of annual poultry imports (FOB) for 2010 into South Africa amounted to R1,766 billion, which constituted a 13% increase or R200 million more in comparison with the value of total poultry imports for 2009.

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COST OF PRODUCTION

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Feed costs have always been a significant issue in the poultry industry and that has also been the case in 2010. Dramatic feed-price increases in 2008 have been the result of the rising prices of maize and soya, the main raw materials in broiler feed. During 2009 and 2010, yellow maize, soya and sunflower prices decreased in comparison, but not to previous low levels as before 2008.

Producers are now competing with ethanol producers for the available maize, and this, coupled with low stock-to-usage ratios, have driven prices upwards. Over the next decade, the renewable fuels mandate and drive for bio-fuels in the United States will impact the global poultry industry. It is estimated that by 2015 about 36% of US maize production could be earmarked for ethanol production. The USA now uses more maize for ethanol than the whole of Africa uses for food.

Profit margins are still under pressure, although feed costs decreased slightly over the past two years in comparison with the high increases of the previous years. The average reported broiler-feed price for 2010 was R3 000,73 per ton, a decrease of 10% in comparison with the average feed price for 2009.

There is great concern in the industry that these increases in input cost will not easily be recovered and price realisation will be under tremendous pressure.

When the variation on the same month of the previous year is considered, the change in broiler feed prices have been increasing since April 2006. The year 2009 has seen a downward trend in the variation of broiler feed price going into a negative growth from April 2009 onwards, and remaining negative through 2010. The change in broiler producer price has also been on a downward trend in 2009 and showing a negative growth trend from July 2009 onwards through 2010, with positive growth recorded for the first time in December 2010.

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ANIMAL HEALTH AND DISEASE

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The past few years have seen a large emphasis on precautionary measures, disease surveillance and control, all in order to reduce the incidence of animal disease and minimise the impact of outbreaks when they do occur. The spread of avian influenza elsewhere in the world remains of great concern, and South African producers remain on high alert, as the threat of Avian Influenza also has the potential to reduce consumer demand. The routine surveillance program has been in place for more than three years, and importantly, chickens have at all times remained negative for highly pathogenic notifiable avian influenza (HPNAI).

Sporadic outbreaks of newcastle disease continued throughout the year. The spread can be largely attributed to a lack of biosecurity, and is linked to the commercial egg-layer industry, where newcastle disease has been far more catastrophic. The broiler industry has become largely resilient in disease situations.

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MEAT SAFETY SCHEME

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The Department of Agriculture, Forestry and Fisheries (DAFF) has proposed delegating the authority for independent meat inspection in terms of the Meat Safety Act (Act 40, 2000) to a body controlled by SAPA. A “Meat Safety Scheme” as defined in the act is of more use to us. The DAFF agrees with this concept.

The Department of Health (DoH) is, in principle, interested in allowing the delegations of authority in terms of Act 54 required for this to work.

It involves:

• Enhancing meat safety practices
• Conducting surveys
• Conducting training
• Investigating food-borne diseases
• Promoting good hygiene practices
• Determining origin of meat and animal products
• Monitoring residues in meat and animal products
• Creating meat and hygiene services / hygiene assessment services
• Creating standard microbiological testing protocols
• All national production to a common minimum standard
• All imported products can be tested to scheme standard (possible to create barriers)
• All further processing by importers able to be tested to same standard as local industry
• Opportunity for more pro-active consumer engagement
• Fair tariffs for all on a cost-recovery basis.

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EMPLOYMENT, SKILLS SHORTAGES AND TRAINING

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Along with being the primary source of protein, the poultry industry remains an important contributor to job creation and employment opportunities. Approximately 10% of all agricultural sector workers are employed in the poultry sector. Considering the dominance of the poultry industry in South Africa, it also has the largest influence on the feed industry as its main customer.

The lack of skills in the industry remains a cause of concern. The need for adequate training and a skills pool resource remains high on the agenda of all producers. SAPA remains committed to assisting the industry in terms of training by staging top-up and other courses. During 2009, SAPA formed a working partnership with KZNPI, an accredited training service provider to present short courses to the industry. Training of the 300 learners who registered in 2009 was completed by the end of April 2010, and another 190 learners were trained in 2010. At this stage, the unit standards cover production and processing and there is a need to expand the available courses to enable learners to complete a full learnership by attending short courses on the core unit standards. This will enable learners to gather the necessary credits to qualify for the National Certificate: Poultry Production or Poultry Processing.

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FINANCES

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The financial statements of SAPA reflect a healthy financial position and for the fourth year in a row SAPA has received an unqualified audit report.

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CHALLENGES:

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The poultry industry faces enormous and complex challenges, including the rising cost of heat and power, environmental issues, sustainability and bird health and pandemic diseases. The following challenges remained critical through 2010 and will remain the greatest challenge for the year to come.

• Higher input costs and combating these through efficiencies. There seems little relief from high feed prices, and producers will need to overcome this to remain profitable.
• The never-ending stream of imports into South Africa, predominately from Brazil, has great competitive advantage in terms of economies of scale. If local demand is restricted, the imports will play an even more important role as they enjoy a favourable price differential.
• The threat that avian influenza poses throughout the world – not only the possibility of an outbreak, but also the impact on consumer demand for poultry.
• The ability of the industry to embrace food-safety practices rapidly enough to ensure consumer confidence in poultry products
• The effect of the time needed for approval and the requirements of EIAs have and will continue to influence expansion of growth.
• The threat posed by the possible removal of anti-dumping duties is immense and could bring this industry to its knees.
• Negative media comments around the practice of brining are a potential crisis for the industry.

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GENERAL

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We need to thank the various role-players, who have ensured the successful functioning of the Broiler Organisation over the last year. I wish to express my thanks to committee members for their contributions to the organisation. To all SAPA staff members, my sincere thanks for your dedication to and support of the Broiler Organisation. To all our members, without which there would not be such a wonderful industry to work in, congratulations on the success of the industry during the past year.

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