1. 1 “Buy local – create a local career” 1 Presentation to Parliamentary Portfolio Committee on Agriculture, Forestry and Fisheries By South African Poultry Association (SAPA) Parliament 1 March 2016 1

2. 2 “Buy local – create a local career” 2 OVERVIEW OF PRESENTATION The effect of the TWO droughts (2015 and 2016) on: – Maize farmers; – Poultry producers, and; – Consumers. What can be done/ is being done. 2

3. 3 “Buy local – create a local career” 3 Effects on the maize farmers Periods mentioned are planting seasons or marketing seasons- farmers use planting seasons and users rely on marketing seasons. SA produces 0,7- 1,5% of world maize. Poultry farmers the second biggest users of local maize, after people. Feed use is greater than human use. Animal production esp. poultry, the main growth area for maize farmers. Maize prices set via Chicago Board of Trade (CBOT). Poultry the biggest user of soya beans and soya oil cake in SA. 3

4. 4 “Buy local – create a local career” 4 Effects on the maize farmers: did we know the drought was coming? 4 SOURCE: Climate Prediction Center (CPC) of the National Oceanic and Atmospheric Administration (NOAA)

5. 5 “Buy local – create a local career” 5 Effects on the maize farmers: when will it end? 5 SOURCE: International Research Institute for Climate and Society (IRI) – Columbia University

6. 6 “Buy local – create a local career” 6 Effects on the maize farmers: world maize stocks 6

7. 7 “Buy local – create a local career” 7 Effects on the maize farmers: 2016/2017 yield expectations (based on BFAP, new CEC data) Commodity5 year average 2016 Normal Weather (BFAP Baseline Aug 2015 2016 Baseline (CEC Feb. Estimate) 2016 Scenario (Reduced Yield) Yield reduction (Baseline vs. Scenario) Thousand tonnes White Maize6 0957 2793 1962 840-11% Yellow Maize5 1316 3854 0603 783-7% TOTAL MAIZE Soybeans8101 294725693-4% Sunflowers687826687549-20% Wheat1 8121 7691 4571 83126% 7 1122613 664 7 2566 623-9%

8. 8 “Buy local – create a local career” 8 Effects on the maize farmers: how much maize do we need? 8 This assessment includes our exports to SACU/SADC countries as these exports are effectively a fixed requirement to serve the basic needs of some of our neighbouring countries. 10,571 10,226 4.97% 11.52%

9. 9 “Buy local – create a local career” 9 Effects on the maize farmers: will we run out? 9

10. 10 “Buy local – create a local career” 10 RSA MAIZE ANALYSIS Marketing year ( May-Apr) White Maize Yellow Maize Total Maize 2014CY2015CY2016CY 2014CY2015CY2016CY 2014CY2015CY2016CY 2014/152015/16E2016/17 2014/152015/16E2016/17 2014/152015/16E2016/17E ActEstimateForecast ActEstimateForecast ActEstimateForecast Crop Estimate ('000 ton)7 7104 7353 196 6 5405 2204 060 14 2509 9557 256 Imports ('000 ton)0701 250 651 0402 050 651 1103 300 Exports ('000 ton)647481540 1 506283264 2 153764804 Average price (R/ton)20623354 20442959 205331574197 Value of Crop (R'm) 15 89815 88115 006 13 36815 44615 017 29 26631 32730 023 Cost of Imports (R'm) 0-233-5 870 -133-3 078-7 582 -133-3 312-13 452 Proceeds of Exports (R'm) 1 3341 6142 536 3 078838976 4 4122 4513 512 Effects on the farmers: yellow vs white maize prices Note: The Yellow Maize (YM) and White Maize (WM) price for 2016CY of R3 669 and R4 696 respectively are average prices since 01 May 2015 to current. Using current prices instead of average prices will exacerbate the situation as described above. 4696 3699

11. 11 “Buy local – create a local career” 11 Effects on the maize farmers: Chicago Board Of Trade (USD) 11

12. 12 “Buy local – create a local career” 12 Effects on the maize farmers: SAFEX Prices 12

13. 13 “Buy local – create a local career” 13 Effects on the maize farmers: the local price premium 13

14. 14 “Buy local – create a local career” 14 Effects on the maize farmers: imports vs. exports 14

15. 15 “Buy local – create a local career” 15 Effects on the poultry producers Maize the biggest part of feed cost. Soybean meal is the second biggest part of feed cost Feed cost is ca. 70% of live bird costs. Poultry meat and egg producers not able to set prices, customers set them. Imports affect local prices – meat mostly. 15

16. 16 “Buy local – create a local career” 16 Effects on the poultry producers cont. Drought affects poultry producers through cost increases. Water availability on farm generally sufficient. Water availability at processing plants (meat) can be an issue. Yellow maize availability on global markets reasonable- some logistical issues. 16

17. 17 “Buy local – create a local career” 17 Effects on the poultry producers: export effect 2014 exports increased the price paid by local users by approximately R 450 per tonne. If exports had been kept at the long term export average volume level the difference would have been close to R 650 per tonne. Exports are needed but the free market system can also lead to some undesired outcomes. 17

18. 18 “Buy local – create a local career” 18 Effects on the poultry producers: costs for all users Users of maize, in total, will pay more than: – R 12,4 billion extra for their maize in the 2015CY vs. the 2014CY (current estimate), and; – R 9,7 billion extra for their maize in the 2016CY vs. the 2015CY (current estimate). So over a two year period the users of maize will have paid an additional R 22 billion. Producers of maize will have collectively earned approximately the same Revenue. It is the users of maize who are suffering much more than the producers of maize – at the collective level. 18

19. 19 “Buy local – create a local career” 19 Effects on the poultry producers: what is the extra cost? Next two slides compare costs in a good year (2014) vs. costs in a bad year (2016). Shows change in costs on feed only – obviously there are other changes in costs for producers. – Additional Storage cost to ensure maize supply. – Transport premiums due to congested logistical supply chain of imports – about R0.50/kg. – Labour – Electricity etc. – Changes in the Rand: Dollar exchange rate. Changes in brining legislation will add about R3.50/kg to production costs 19

20. 20 “Buy local – create a local career” 20 Effects on the egg producers INFLUENCE OF MAIZE AND SOYA O/C ON EGG PRICES Feed InformationPeriod 1Period 3 Difference (P2-P1) Inclusion in Broiler Feed (Percent) Impact on Final Feed Cost (Rand) Price of Maize (R/ton)R 2 054R 3 699R 1 64560R 987.00 Price of Soya Oil Cake (R/ton)R 5 500R 6 400R 90010R 90.00 Total (R/ton)R 1 077 Total (R/kg)R 1.077 Egg Production Information Feed intake (kg/day) 0.115 Hen Housed Production (Percent) 90.0 Feed intake (kg/egg) 0.128 Cost evaluation Cost difference per egg (Rand)R 0.138 Cost difference per doz eggs (Rand) R 1.651 20

21. 21 “Buy local – create a local career” 21 Effects on the broiler producers 21 INFLUENCE OF MAIZE AND SOYA O/C ON BROILER PRICES Feed InformationPeriod 1Period 3 Difference (P2-P1) Inclusion Rate in Broiler Feed (Percent) Impact on Final Feed Cost Price of Maize (R/ton)R 2 054R 3 699R 1 64565R 1 069.25 Price of Soya Oil Cake (R/ton)R 5 500R 6 400R 90016R 144.00 Total (R/ton)R 1 213 Total (R/kg)R 1.213 Broiler Information Feed conversion1.65 Live weight (kg)1.80 Calculated feed intake (kg)2.97 Cost evaluation Change in feed cost per live bird of1.8kgR 3.60 Impact due to feed cost (Rand per kg Livecost)R 2.00 Impact due to feed cost (Rand per kg Meat)Yield72%R 2.78

22. 22 “Buy local – create a local career” 22 Effects on the poultry producers: total cost of the drought Broilers: – Slaughter 1 billion birds leading to R 3.6 billion increase in feed cost, and; – Brining regulations will add R 4.5 billion to industry costs. Eggs: – Produce around 8 billion eggs a year meaning an additional R 1 billion in feed costs. 22

23. 23 “Buy local – create a local career” 23 Effects on the poultry producers: feed/ broiler price curve 23

24. 24 “Buy local – create a local career” 24 Effects on the poultry producers: feed/egg price curve 24

25. 25 “Buy local – create a local career” 25 Effects on the poultry producers: global chicken production profitability Source: Public company filings for relevant operating segment. 2014 EBIT Margins by Country/Region – source Rabobank 13.0% 15.9% 5.1% 1.8% 1.9% 11.9% 7.2% 9.4% 6.3%

26. 26 “Buy local – create a local career” 26 Effects on the poultry producers: employment Sales might reduce because of price. For every 10 000 tonnes less meat that we produce we will shed 1 069 direct and indirect jobs Some companies are about to shed a few thousand jobs in total.

27. 27 “Buy local – create a local career” 27 Effects on the consumers Price Availability Dietary quality 27

28. 28 “Buy local – create a local career” 28 Effects on the consumers: is the consumer paying? 28

29. 29 “Buy local – create a local career” 29 Effects on the consumers: what we need 29

30. 30 “Buy local – create a local career” 30 Effects on the consumers Availability – Increasing prices will lead to lower orders and lower production. – Consumers will find less product in the freezer/ refrigerator or on the shelf Dietary quality – Brined IQF the main protein product in SA – All alternate products other than eggs are either; More expensive, Have a poorer protein profile, or Have higher fat and/or salt levels. 30

31. 31 “Buy local – create a local career” 31 Effects on consumers: not all proteins the same Food Description Typical serving sizes consumed in SA* Weight of typical serving size^ (g) Average Amino Acid Score (%) Amino acid score for methionine and cystine (%) Cheese flavoured Russian2 cooked sausages62.415669.75 not protein source Red Vienna2 vienna’s83.3315898.04 not protein source Chicken Bangers2 cooked sausages10015277.64 not protein source French polonyOne x 1,8cm thick slice10013162.75 not protein source Econo-wors1 x 10 cm cooked93.7516197.98 not protein source Pilchards in tomato sauce¼ tin75186148.74 Corned Beef¼ tin102.5161163.64 Boiled eggs290174153.28 IQF cooked chicken 25% brine based marinade 1 average IQF piece of chicken 117171149.29 IQF braai-ed chicken 25% brine based marinade 1 average IQF piece of chicken 116176130.53 31

32. 32 “Buy local – create a local career” 32 What can be done/ is being done? Control exports Build up a strategic grain reserve Do not allow the maize tariff to be increased State funded insurance scheme for grain farmers to lower costs and reduce farming risks Limit poultry imports Remove soya tariff Tax concessions for users of maize Companies will reduce their margins Remove VAT on chicken (IQF) improving the affordability of the cheapest form of protein in South African diets. 32

33. 33 “Buy local – create a local career” 33 RE A LEBOGA ENKOSI DANKIE THANK YOU 33