Sunday, 16 June 2019
By Charmain Lines

A poultry master plan should come before the chicken and the egg

The question of what came first, the chicken or the egg, might not have a simple answer, but the 80/20 principle is simple: direct your efforts to the 20% that contributes 80% of the desired outcome.

Looking at the SA economy, the chicken industry is a 20% one — that can deliver 80%. All it needs is strategic, co-ordinated and coherent investment from all stakeholders, and both the public and private sectors.

The statement issued by the department of trade and industry early in March mentions that research work on the development of the “poultry master plan” has started as a joint effort between several government departments and the SA Poultry Association.

That such a plan cannot be hatched soon enough is illustrated by a few examples that suggest the public-sector hand does not know what its private-sector counterpart is doing, and vice versa.

In its pursuit of the entirely legitimate and necessary programme to bring about economic transformation, including black industrialisation, the government commits vast amounts of money for a variety of investments. A case in point is the R1.8bn special economic zone (SEZ) near Cape Town, which the government claims will create 1,200 jobs by 2022 and the equivalent of 24,000 jobs over 20 years.

In theory, the project can probably not be faulted. However, if you consider what the chicken industry is able to offer — 30,000 jobs in a handful of years if the government instituted trade tariffs to enable industry growth — the SEZ’s massive outlay for relatively meagre employment projections seem hugely disproportionate.

An industry masterplan that maps and quantifies development opportunities would be invaluable in helping policy makers decide where and how to spend taxpayers’ money to achieve an 80/20 benefit.


Big farmer

As a second example, let’s look at the apparent disconnect between current investment targeting and investment return. The government spends much money and energy on the establishment of black farmers of chicken and the building of infrastructure for them, such as abattoirs and processing plants. Where farms fail, the government has been known to buy them out to keep the farmer going.

While government investment in a crisis is not necessarily a bad thing, it is unclear whether such actions are part of a coherent policy aimed at getting actual returns. Available evidence, sadly, suggests not. In 2017, the Public Investment Corporation (PIC) acquired the full shareholding of Daybreak Farms, currently the fourth largest producer in the country, on behalf of the Government Employees Pension Fund, the Unemployment Insurance Fund (UIF) and the Compensation Fund.

The government’s main concern need not be investment at the primary level. The local chicken industry, which is among the most efficient in the world, has proven its ability to put farmers on land.

According to media reports, the transaction came after the ANC called on the government to buy beleaguered poultry farms negatively affected by “dumping” of cheap chicken from the US, Brazil and the EU. At the time, the department of labour said that “the UIF’s investment in Daybreak Farms is in line with the fund’s investment mandate, which is underpinned by facilitating job creation and sustaining jobs in the market by ensuring that companies reduce the impact of retrenchments and job losses as a result of adverse economic pressures”.

Exact details of the transaction were not released, but the UIF revealed that its portion amounted to R483m. Given that the three government entities are equal shareholders in Daybreak Farms, equal investment can be assumed, bringing taxpayers’ total investment to almost R1.5bn. Unless Daybreak Farms delivers healthy returns, the PIC would have done better to leave this money in a bank account where it could earn guaranteed interest.

In October last year, the department of labour announced that it was investing R800m, in partnership with the PIC, in labour-intensive agriculture and related business projects in the coming year. To this end, the UIF commissioned the PIC to investigate the feasibility of investing in poultry and abattoir projects nationwide. In its announcement, the UIF mentioned that the investments would be guided by the “uniqueness of each province, and would take advantage of the competitive edge of that province”.

While investments like these are welcomed, they address only the supply side of the industry. The market, or demand side, is not part of the equation.


Local is lekker

It is true that local demand for chicken is growing, so the investment in the establishment of farmers and processing infrastructure makes sense. However, it is also true that this increased demand is increasingly being met by dumped imports from mainly Brazil, followed by the US and the EU, resulting in a shrinking marketplace for locally produced chicken.

The national poultry industry is under siege from imports and dumping, yet the government is strangely reluctant to institute the measures needed to protect the very market the farmers and abattoirs it is investing in have to sell their products to. It also neglects some of the input factors that are critical to chicken farming and processing, such as reliable water and electricity supplies, and roads infrastructure to facilitate the transport of eggs, day-old chicks, feed and broilers ready for slaughter.

Without providing and maintaining these crucial inputs, a new abattoir risks being nothing other than an expensive white elephant.

It makes no sense to make a huge investment then fail to secure its potential to return a dividend. This disconnect can only be fixed through a master plan that brings the intellectual capital, financial resources and good intentions of government and the private sector together.

As a result, our tax money would be better spent where it would have the biggest market impact by, for example, strengthening our country’s capacity to enforce international food safety requirements, and creating the conditions required to make exports possible.

The government’s main concern need not be investment at the primary level. The local chicken industry, which is among the most efficient in the world, has proven its ability to put farmers on land. The industry’s current track record shows at least 70 black farmers now own their farms, in addition to being sustainable and successful broiler chicken suppliers, thanks to technical assistance and support by the private sector. The government’s efforts and money should be strategically spent to create the environment in which these, and other future farmers can thrive. Farmers need markets — it is as simple, and complex, as that.

A poultry master plan and action programme is long overdue. The economic benefits that such a plan could deliver are obvious, and the societal benefits for families and vulnerable communities throughout the country are incalculable.

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