Patel calls for urgent probe into temporary tax rebates

Trade, industry & competition minister Ebrahim Patel has asked for an urgent investigation into a possible temporary tax rebate on imported chicken.

A rebate may increase imports and mitigate the expected price increases of chicken. About 25% of SA’s chicken is already imported. It will incentivise imports amid the avian influenza outbreak.

There is concern that there will be too little poultry available in December as more than 1.3-million broiler breeders have been culled, reducing the supply of newly hatched chickens.

Another 1.3-million chickens that lay eggs for consumption have also been culled, leading to egg shortages in Gauteng and the northern provinces.

Patel has asked the International Trade Administration Commission (Itac) to look at whether there must be rebates on ordinary import duties on chicken and/or the anti-dumping duties introduced in August on bone-in portions from some producers in Brazil, Ireland, Poland, Spain and Denmark.

Itac is a public entity that conducts customs tariff investigations and manages import and export controls. It has been given two weeks to receive comments on the issue.

The bird flu outbreak, which began in June in Mpumalanga and has spread to four more provinces, is SA’s worst avian outbreak and appears to show no sign of easing.

The local poultry industry, which has been unprofitable all year, had hoped to use the expected supply shortage to lift prices and recover from the losses caused by avian influenza culls and load-shedding costs.

The poultry sector is “spitting blood” at the idea of a rebate on imports, said Anthony Clark, an analyst who tracks maize and feed prices and works closely with the chicken sector.

Clark said he understood Patel’s reasoning and desire to ensure there was adequate chicken for low-income consumers, but he accused the minister of “throwing petrol on the local poultry industry”.

SA’s largest chicken producers, Astral, RCL Foods and Public Investment Corporation-owned Daybreak Farms, have been selling chicken below cost price and negotiating hard with retailers to allow them to sell at a profit.

Last week, Daybreak CEO Richard Manzini said price increases would allow the industry to offset the losses it has been experiencing.

If the rebates are implemented, it may not stem shortages in time for the festive season when meat consumption increases.

It takes two to three months for imports to reach SA, go though customs and be repackaged in smaller volumes to be sold on to consumers.

Itac chief commissioner Ayabonga Cawe said he was aware of the urgency of the matter. “The minister has directed us to undertake the investigation expeditiously, which would include the two-week consultative process, and then I think we then have to run the gauntlet.”

He said the agency’s investigation would try to balance protecting the local industry from dumping with concerns about supply constraints.

Cawe said: “For now we’re trying to deal with a short-term shortage arising from the avian flu outbreak. And really, the idea is to see whether we can open the valve of control measures to deal with the supply chain [shortages].”

He called on consumer groups to comment on a proposed rebate in addition to the industry players.

“We are hoping that some of the consumer advocacy groups will submit comments, because we know this is a major staple protein for many low-income households. So, there are a lot of welfare implications associated with how the investigation unfolds,” Cawe said.

SA Poultry Association CEO Izaak Breitenbach said on behalf of the local poultry industry that it has been unprofitable since December, in part due to loadshedding, and it rejected Patel’s latest move.

“It will be the final nail in the coffin of the poultry industry.”

The industry was protected by anti-dumping duties because it was in distress, Breitenbach said. “It is time to look after the poultry industry,” adding that tax rebates were not needed to stimulate imports.

But Association of Meat Importers and Exporters CEO Paul Matthew said: “As an industry we welcome the minister’s progressive thinking.

“We are pleased to see the government being proactive and placing discussions that serve the best interests of the SA consumer at the forefront.”

Consumers had been severely impacted by the sustained rise in food prices, Matthew said.

“Access to affordable protein sources remains a critical issue facing the poor in SA.”

Public Investment Corporation-owned Daybreak has had its fair share of scandals and is selling chicken and eggs in an industry under severe pressure from loadshedding and high feed costs.

Business Day spoke to CEO Richard Manzini about managing the company in the wake of SA’s biggest bird flu outbreak.

Daybreak has not been profitable for some time. When do you think this will change?

At the March 2023 financial year end, we reported a loss. We are now tracking profitability, but at very low levels. We will probably break even in the 2024 financial year.

The costs affecting us are primarily the avian influenza outbreak and the continued effect of load-shedding. Without those, the business would definitely be profitable.

We spend about R8m a month on coal and diesel for generators. Our profit has been wiped out. At this stage this is not a cost that we’re able to pass on to the customer.

How did you help the market when bird flu hadn’t affected your farms but affected others?

We didn’t get hit [initially] when everyone else had bird flu outbreaks so we were supporting the industry. We sold over 500,000 day-old chicks to our competitors to help them with production. We did it to help keep the industry sustainable.

Has Daybreak been selling chicken below cost?

The industry took a lot of frozen chicken and put it into the market at a price we couldn’t defend. Everyone is driving volume to get cash [and selling below cost]. We’re not the only ones doing it. We couldn’t actually match the price of Astral and RCL. We lost sales volumes because of that.

Do you think chicken prices will rise due to the avian influenza outbreak?

We definitely have a supply shortage. With that in mind, we expect price increases. What we’ve seen with the big fastmoving consumer goods players is they’re all building up stock. They all are trying to demand as much as possible from all of us so they can store it and wait for the price increase to come in before selling it.

Everyone is reluctant to just sell as much chicken as we can to the retailers, because we know we’ll lose out on the margin. They will lock us in at the current price and then pass on the increase to consumers. The industry is talking to retailers to ask them to at least increase the price they pay us now so we can all benefit from increases together.

How are the conversations about price increases going?

We have had discussions over the past two weeks on exactly that. They are open to the reality. We unfortunately face no choice but to lift prices. The poultry industry is completely unprofitable, and it’s not sustainable. I can’t be producing a chicken that I’m not selling at the right price. And regardless of how efficiently I do it, I still have to contend with no electricity and diesel costs that I’m not passing on to the consumer.

Is the industry concerned the government is looking at a rebate to reduce the tariffs on imported chicken and lower imported chicken costs?

We hope that the government will give us a good sense on whether they plan to relax import duties. We need to remain price-competitive. [Lower import prices and fewer import duties will put the locally produced prices under pressure. However], a price increase is something the local industry would welcome as it would allow it to offset some losses from the past couple of months.

Daybreak has had its fair share of corruption scandals. How are you avoiding this?

We have gone a long way in the past couple of months strengthening internal controls. We’ve just had a very successful AGM. We are appointing a new external auditor, Nexia.

There were delays paying feed producers earlier in the year, as feed prices rose?

Daybreak was managing the [feed cost] crisis without overdraft facilities, which is something that is not spoken about in the market much. We were no different to the rest of the poultry industry. They are fortunate they could meet the payment terms simply because they had an overdraft facility. Everyone is tapping into their working capital solutions to weather the storm.

Do you not need bank assistance?

We are fixing it. We are becoming bankable. We have banks that are looking at developing a working capital solution for us. We are very close to proper corporate banking solutions that will help us to match when our payments come in and go out.

What kind of assistance does the government need to give the industry in the wake of this avian flu outbreak?

We need to export fertilised eggs to hatch into chickens which we would slaughter around December time — when there is expected to be a shortage. I think most of our hatcheries in the country are licensed for exporting. With the assistance of the government, we should be able to change those to import licences.

There have been egg shortages. I think in terms of chicken we’ve been slightly proactive, as we foresee the shortage coming and are trying to solve for that shortage before it actually happens.