Poultry companies walk the tightrope

While the poultry industry has been fighting against cheap imports of Brazilian chickens, it’s coming under scrutiny for anti-competitive behaviour at the same time.

In mid-February, the Competition Commission said it was wrapping up investigations into complaints that members of the local poultry industry had agreed to divide the market by allocating territory and customers. Initiated in April 2009, the investigations involve the South African Poultry Association, the Animal Feed Manufacturers Association, Rainbow Chicken, Astral Foods, Pioneer, Country Bird Holdings and Afgri.

Competition Commission spokesperson Molebogeng Taunyane said the commission regards the collusion to be of a “serious” nature. Negotiations for possible settlements have already started with some of the parties, although Taunyane could not reveal their names.

Pioneer Foods, meanwhile, has already reached a settlement with the commission on charges relating to anti-competitive conduct in maize and wheat milling, baking, poultry and eggs. Astral Foods has admitted that an internal investigation into one of its fresh chicken business units in Western Cape revealed evidence of anti-competitive practices between 2003 and 2007. “Astral is currently engaging with the commission in relation to these findings,” said Astral CEO Chris Schutte.

In the meantime, the poultry industry has made inroads with its claims that Brazil has been dumping chicken in South Africa. SARS recently placed interim anti-dumping levies on frozen poultry products of between 6% and 63%, pending the results of the final investigation. “The Competition Commission alleges that there are indications of cartel activities, whereby poultry producers are increasing the prices between themselves, which means poultry prices are already quite high in South Africa,” said Trade Law Centre researcher Willemien Viljoen.

“So the minute you cut out the cheaper imports, it will have a big negative effect on the poor, at whom the frozen poultry imports are targeted. That is the biggest problem in terms of this anti-dumping duty being levied on product from Brazil.” However, Warren Jervis, senior portfolio manager at the Old Mutual Investment Group, said cheap imports did indeed have a significant impact on local producers.

The imports are going into specific areas, such as mining canteens and perhaps the prison system, he explained. They can range from 15% to 25% of the entire chicken consumed in South Africa and “are putting a lot of pressure on the smaller, unlisted entities who are processing 150 000 to 200 000 birds Cradocka week,” he added. “They can be quite dominant in outlying areas and that’s where the impact of imports comes in.

“The large local producers may be making good profits, but that’s because of their efficiencies and good poultry stock.” Marius Gericke, chairperson of the South African Poultry Association, said dumping has caused harm to the industry in the form of lost market share and artificially low pricing. He doesn’t foresee a significant increase in the price of poultry once the surcharges come into effect, he added.

“Increased market share, greater economy of scale and natural competition among poultry producers will continue to shape pricing,” continued Gericke. “Supply and demand will ultimately balance the scales in the consumers’ favour. The natural growth in our market share through fair competition will greatly facilitate our opportunities for organic expansion, creating substantial additional employment and boosting the South African economy. “Additionally, the retention of foreign exchange can only further assist the country’s overall balance of payments.”