1 Page. Poultry meat industry stats 2013 INDUSTRY OVERVIEW

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1 Poultry meat industry stats 2013 INDUSTRY OVERVIEW Looking back over the past 10 years, a picture is painted of changes in prosperity and confidence in the broiler industry. The first two years showed no growth in broiler production, but the next four years, from 2005 to 2008, recorded compounded growth of more than 28% over the period. Over the past five years, from 2009 to 2013, growth in broiler production slowed down considerably. Volatility in profitability is inherent to the broiler industry, since biological factors such as poultry diseases and prolonged turnaround times in the production chain combined with hikes in feed costs, electricity and fuel, for example, have a direct impact on production costs. When these increases in production costs coincide with a downswing in the economy and record volumes of cheaper imported chicken, profit margins become severely depressed. This was the situation that the broiler industry has had to deal with over the past five years - and will still be facing in Price comparison of protein sources Chicken remains an affordable protein source relative to other meat protein sources and remained competitively priced in a time of weak economic performance. The average producer price for beef abattoir selling prices for class A2 / A3 was R29,11 per kg in 2013, while the beef abattoir selling prices for Class C2 / C3 was R23,40 per kg. The average price for pork, all classes, was R19,22 per kg. In comparison with the other types of meat, the total realisation (less all discounts, rebates and secondary distribution) broiler producer price was R15,46 per kg in It should be remembered that the broiler pricing is for finished product and the other meat types still have other costs added before becoming final product. In 2013 the only protein source more affordable than broiler meat was eggs at R15,22 per kg. Graph: Comparison of average annual producer prices of different protein sources for Page

2 International price competitiveness According to the USDA, the average 2013 price in the Northeast region of the USA, for leg quarters was 49,55 US cents per pound, and for skinless-boneless breast 162,52 US cents per pound. Depicted in Rand - and using the average exchange rate for the year, the leg quarter price equated to R10,33 per kg and the skinless-boneless breast price to R33,88 per kg. The South African price for mixed individually quick frozen (IQF) portions was R13,77 per kg and for filleted breast R24,76 per kg. It is difficult to use portions and breast as a yard stick due to the different consumption patterns (SA vs other first world countries). However, based on pricing to international Quick Service Restaurant (QSR) markets, or on whole birds for that matter, we are very competitive when the whole carcass is used as the measure. This is also seen in the low volume of whole birds being imported to SA, before and after the imposition of the new tariffs. Volume and growth During 2013, SAPA has been working on the broiler statistical models. After some detailed broiler model work, SAPA can report that the broiler breeding industry has indeed improved its performance. This is as expected for an industry that prides itself on advancement. However, at a commercial level not all this extra capacity is used, for the obvious reason that the market doesn t - and won t - allow it until the dumping of foreign poultry comes to an end. We use a theoretical model that gets verified at a few points along the value chain. One of these is the commercial hatchery figures, which we have been sampling. We are also working on improved abattoir statistics. From now on, we will present graphs in the statistical report that shows theoretical potential, realised breeding potential, and slaughterings. What this work has shown is that we have the potential to respond relatively quickly to a change in market demand. Once the numbers are settled, they will be backwards integrated into our statistical database. o Broiler production The exceptionally high and growing demand that categorised the period 2005 to 2008 did not continue through to 2013, with SAPA estimating a decrease of 0,4% in total broiler production from 2012 to 2013, following a decrease of 0,6% in the previous year. Day-old chick placements amounted to 993 million for 2013, a decrease of 1,5%. From the placement of day-old chicks to growing to slaughtering age during 2013, a total of 947 million broilers were slaughtered. This shows a yearly decrease of 0,4% and equates to 18,169 million broilers slaughtered per week. Broiler industry bird numbers: 2013 vs 2012 YEAR Avg. Broiler Parents Breeding Stock Day-old Broiler Chicks produced Avg. / Avg. / Total / in Rear in Lay Week Week Annum Broilers in Rear Avg. / Week Broilers Slaughtered Avg. / Total / Week Annum m m m m m m m m ,815 6,520 10,335 19, ,862 96,140 18, , ,731 6,769 10,501 19, ,429 92,788 18,169, 947,421 Change -0,083-0,249 0,166-0,243-15,433-3,351-0,013-3,281 % Change -2,2 3,8 1,6-1,3-1,5-3,5-0,1-0,4 2 Page

3 o Prospects for 2014 There was no growth in broiler production in 2013, with the industry having to cope with substantial production cost increases and depressed demand for product. It is therefore likely that the broiler industry will focus on consolidating its financial results rather than expanding production volumes during Should the financial environment improve during the first half of the year, a slight increase in broiler production can be expected only towards the end of Gross value The gross value of primary agricultural production from poultry meat, inclusive of all types of poultry, for the period 2013 as recorded by the Department of Agriculture, Forestry and Fisheries (DAFF) was R32,9 billion reflecting an annual increase of 11,3%. As poultry producers, we are the largest segment of South African agriculture at 17,5% of all agricultural production and 37,6% of all animal products in South Africa in Rand terms. INPUT COSTS An average increase of 5% in 2013 on the back of the 31% increase in 2012 in the feed price indicator, driven by the high maize prices, placed margins under pressure (the broiler feed price is defined as the weighted average feed price of all feed types, including distribution, excluding medication and additives and excluding VAT). Feed prices increased due to the drought in the USA in the period under review, which influenced world prices. The broiler feed price indicator traded at an average of R4 581,18 per ton at producer level. Graph: Broiler feed price indicator When the percentage change in comparison with the previous year is taken into account, the broiler price fluctuated, being on a downward trend in the latter part of 2013 with a sharp increase in December 2013, and the broiler feed price was in a downward trend in Page

4 Graph: Yearly percentage change in broiler price and in broiler feed price Poultry producers have in addition been faced by above inflation cost increases in electricity, gas and diesel. Graph: Broiler producer price vs broiler feed price Index The broiler price remained under pressure due to imbalance in supply and demand in the period under review, with food inflation increasing. The year has seen further depression in the poultry market in South Africa, as producers experienced receding margins as realisation prices plummeted. FEED USAGE In terms of feed usage, broilers in rearing used 2,823 million tons during Adding the broiler breeders feed usage to the above figure, the total broiler feed usage for 2013 should reach 3,353 million tons, an increase of 0,1%. Feed usage in the broiler industry: 2013 vs 2012 YEAR Broilers Parent Feed Tons Total Broiler Breeding Stock Broilers Production Feed Tons per per Total / Avg. / Rearing Laying Annum Week Annum Week Broilers Industry - Feed Tons Total / Avg. / Annum Week 4 Page

5 per Annum per Annum T t t t t t t t Change % Change -2,47 3,54 2,41 2,69-0,28 0,00 0,14 0,41 Giving that the time period overlaps, the 3,4 million tons, as stated in the table, corresponds with the national feed volumes of 3,3 million tons estimated by the Animal Feed Manufacturers Association (AFMA) for the period April 2012 to May TRADE Annual volume of imports For several years, the effect of imports on the local poultry industry has been highlighted. Products on the market caused by imports, which account for roughly 18% of the total market, has removed pricing power from local producers to the point where prices do not reflect the actual costs of production. Our largely unprotected poultry industry is something the EU and Brazil, among others, have been only too eager to exploit. Nigeria, Kenya and Swaziland do not allow imports at all, while Botswana and Mozambique issue very few import permits. Namibia restricts imports through a tightly controlled quota system. By way of comparison, the EU apart from its stringent sanitary thresholds applies tariffs of R5 to R12 a kilogram on imported chicken, Canada applies a 249% tariff on most imports, Norway 306%, Mexico 234% and India 100%. At the same time, non-tariff barriers in the form of phytosanitary restrictions prevent South African producers from accessing lucrative export markets. We therefore believe the poultry industry has a strong claim for higher tariffs to control a clearly flawed and unfair competitive playing field. Annual Poultry Imports The annual poultry imports for 2012 amounted to a record breaking 404,279 tons, which constituted a 15% increase compared to the previous year. During 2013, the total poultry imports of 390,542 tons are 3% less than 2012, but still 12% more than in The broiler industry is subjected to unprecedented cost pressures which are aggravated by large increases in imported frozen products, especially from Brazil and the EU. These factors are all contributing to the crisis facing the industry. Note that when the term poultry imports is used, it refers to fresh and frozen chicken meat, including processed chicken meat; turkey meat; meat and product from ducks; geese and guinea fowl. Broiler meat, including mechanically deboned meat (MDM), accounted for 91% of total poultry imports in volume terms, turkey meat imports for 9% and the balance of 0,1% being ducks, geese and guinea fowl products. Frozen Broiler meat imports 5 Page

6 Frozen broiler meat imports increased by 36% in 2011 followed by an increase of 14% in 2012 and a decrease of 4% in 2013, with a total of 355,166 tons imported in MDM contributed 40% to frozen broiler meat imports, while bone-in broiler portion imports contributed 41%; whole broilers contributed 1%; carcasses 4%; boneless portions 4% and offal 10%. Graph: Total annual frozen broiler meat imports The country of origin of imports has changed over the last few years with a significant increase being experienced from European countries, which enjoy a free trade agreement with South Africa. The origin of frozen broiler imports for 2013 is 58% from countries excluding EU countries and the remaining 42% from EU countries. Brazil remained the main contributor in 2013, with 82% of countries excluding the EU and 48% of total frozen broiler imports (including EU countries). Mainly MDM was imported at 72% of total frozen broiler imports from Brazil. Brazil remains a threat due to the exchange rate dynamics, competitive advantages in terms of climate, feed costs, economies of scale, and government support. Graph: Imports of frozen broiler meat originating from Brazil If EU countries are taken as a unit, then 42% of total chicken imports came from the EU in A total of 148,104 tons of frozen broiler meat was imported in Five years ago, in 2009, 6 Page

7 4,100 tons of frozen broiler imports originated from the EU. In the following four years, increases were 209%; 524%; 58% and 17% respectively per year. Graph: Total annual frozen broiler imports from the EU countries In 2013 Netherlands was the biggest contributor, with 45% of frozen broiler imports from the EU originating from that country. This was followed by the United Kingdom with 26%, Germany with 15% and Denmark with 5%. In terms of product mix from the EU, the main product imported in 2013 was bone-in portions, accouting for 79% of the total. This was followed by MDM and offal, both at 9%. Value of imports The value of annual poultry imports at Free On Board (FOB) level for 2013 into South Africa amounted to R3,9 billion - a 10% increase in comparison with the value of total poultry imports for Frozen broiler imports to the FOB value of R3,4 billion entered South Africa - 8% more than the previous year. The main contributors were frozen bone-in portions at R2,0 billion and MDM at R712 million. Although imports decreased in volume terms in 2013, in value terms there was an increase of 8% on FOB-level in frozen broiler imports and 10% in total poultry imports. Poultry exports Still operating from a low base, poultry exports amounted to 25,350 tons in 2013, an increase of 80% compared to A total of 23,289 tons were chicken exports at an FOB value of R345,5 million. Poultry exports make up 1,5% of poultry production. The main destination countries for poultry exports were Mozambique with 37%, Lesotho with 21% and Zimbabwe and Namibia with 9% each of the total exported. All other destination countries received less than 5% of exports respectively. CONSUMPTION Poultry consumption 7 Page

8 Consumption of poultry meat amounted to 1,9 million tons in Total poultry production was 1,7 million tons. Per capita consumption of poultry meat was 35,69kg per annum. Chicken consumption Consumption of chicken meat amounted to 1,861 million tons in Chicken production, including subsistence farming and depleted breeders in the broiler and egg industries was 1,671 million tons. The per capita consumption of chicken meat for 2013 was 35,04kg per annum. Chicken consumption including injection marinating Chicken production, including injection marinating, exceeded broiler production by on average 20% in 2013 to total 2,2 million tons. Estimated brining percentages were used on IQF, frozen portions, whole frozen chicken and frozen value added products. Taking marinating into account, the per capita chicken consumption in 2013 was 37,75kg, an increase of 7,7% in comparison with consumption excluding marinating. 8 Page