Feeding southern Africa?
In 2016 the South African poultry sector faced intense pressure from two sides in the form of much higher input costs and increased imports of low-priced chicken from the European Union and the USA. Poultry firms have called for increased protection against imports. Instead of taking a short-term view, we argue that the current crisis highlights the need for a regional strategy for a competitive poultry value chain across southern Africa.
Coordinating investment and production along the value chain means working together across borders.
Competitiveness in poultry requires coordination to achieve low costs and efficient production throughout the value chain, from feed and breeding stock through broiler production to slaughtering and retail of the final poultry products. Transport and logistics play a role along the whole chain.
Countries such as Brazil have implemented effective national strategies to develop an integrated value chain from the main feed inputs of maize and soya to penetrating export markets. Brazil is a very large country which includes huge areas of agricultural land with high rainfall. In South Africa's case the best land for expanded low-cost agriculture, especially given climate change, is outside our borders in countries such as Zambia. Coordinating investment and production along the value chain means working together across borders, particularly in the production of lower-priced soya and maize as inputs into animal feed.
Huge potential for regional development
South Africa is a substantial net importer of soya with the result that prices in the country are stuck at import parity levels (around US$440/tonne in 2016), much higher than in the exporting countries of South America from which the soya currently comes. Maize prices in South Africa have generally been at export levels (around US$150/tonne) reflecting the surplus production in most years. However, in 2016 due to the drought, yellow maize prices in South Africa were at import levels of around US$220/tonne (a 50% hike from US$150/tonne).
2016 therefore saw a triple whammy for the poultry sector with high maize prices on top of soya prices, along with increased competition from imports. Rising demand from economic growth and urbanization across the region mean the demand-side pressures will only increase.
Video of Simon Roberts &ndash; Playing Chicken: Food and Trade in Southern Africa
Simon Roberts talks about the animal feed to poultry value chain and how it can be made more competitive.
Poultry producers' main costs in South Africa were therefore very high. Addressing feed costs must be the basis for a sustainable competitiveness strategy. Even with maize prices falling back to export levels in 2017, more variable rainfall under climate change means a medium-term strategy for a sustainable industry needs to take the inevitable changes or variability in production into account. And while there has been increased soya production in South Africa in recent years, land and water constraints restrict its expansion.
By comparison, the wider southern Africa region is blessed with abundant water, and the 20% of South Africa's poultry demand which is currently imported, as well as the growing demand across neighbouring countries, is there to be supplied. Soya can also be grown sustainably across nearly all of Zambia, with soil conditions in some areas so good that no fertiliser is required.
What needs to be done to strengthen the regional poultry value chain?
A soya-and-maize-to-animal feed strategy for the region
South Africa imports large volumes of Argentinian soya, which was priced at approximately US$480/tonne in February 2017 including transport, insurance and financing costs. By comparison, Zambian soya prices were around US$350/tonne at the same time, down from about US$450/tonne as a result of the growing surplus resulting from investment in agriculture. Even with the high cost of overland transport from Zambia to Gauteng, which has been around US$110/tonne, Zambian soya is now competitive at about US$460/tonne.
Lower transport costs, which should be around US$40-50/tonne given the distance, would mean Zambian soya can lower the costs of South African poultry producers even further while increasing the returns to Zambian farmers. For a sustainable strategy, we must look for ways to reduce transport costs and decrease the costs of producing soya in Zambia which can drive the poultry industry. Transport costs are already being reduced to around US$50 as increased South African exports to Zambia mean cheaper backhauls are available and soya is being delivered into Gauteng in 2017.
Input costs, extension services and investment support
The largest challenges facing Zambian farmers are high finance costs, low levels of mechanization for harvesting, and a lack of storage facilities. Commercial lending rates, which currently average 44%, are a major constraint for farmers who need access to credit for inputs. There is a clear opportunity for development finance institutions across the region to provide low-interest loans to farmers.
Timely harvesting is also important for soya, which is prone to shattering and significant harvest losses if left for too long once it ripens. Investments in harvesting machinery which could be used by small farmers on a cooperative basis are thus required. Increased soya supply can largely come from small-scale farmers who have the potential to ramp up production quickly with the necessary support.
With increased production, additional storage facilities would be needed in soya-producing regions along with improved transport within Zambia. Support in terms of reduced fuel levies for diesel used on farms and initiatives to zero-rate spare parts for irrigation equipment would also reduce farmers' production costs. There is significant potential to grow high-quality GMO-free soya across Zambia given appropriate support and assured access to markets.
The way forward
While increased tariffs may protect the South African industry in the short-term, a longer-term solution for improved competitiveness requires that we look towards increased regional production of low-cost animal feed inputs and closer integration of production and markets across southern Africa. The shift from a narrow focus on national food sovereignty to a focus on competitive systems of food production across southern Africa requires that we take a regional value chain approach.
One of the stumbling blocks to improvements in this area is that other countries are afraid of South Africa having a mercantilist agenda to open up their markets. Improved transport and logistics, along with more efficient border controls, will be a reality if it is accompanied by industrial policies which seek to grow productive capabilities across countries, so that they can compete effectively in the South African market. Poultry is a very important test case for just such an agenda.
The views expressed in this piece are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors.
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|Date:||Mar 1, 2017|
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