AMIE Presentation

2. AMIE Presentation Portfolio Committee on Agriculture, Forestry and Fisheries Cape Town 13 March 2015

3. AMIE introduction and presentation on challenges facing the industry • Introductions • David Wolpert CEO AMIE (ceo@amiesa.co.za) • Georg Southey (sub com) (georg@merlog.co.za) • Context • Fallacy • Challenges • Opportunities

4. The Constitution of AMIE gives the Main Objects as: • To promote and to protect the interests of the Members. • To deal with all matters that may affect the common interest of the Members. • To confer and collaborate with all bodies controlling and administering the Meat Industry in Southern Africa. • To convey views and recommendations to all concerned in order to improve the meat import and export business. • To seek and maximise official recognition of the Association. • To promote and safeguard the common interest of Members in their activities as Meat importers and exporters. • To represent Members in their dealings with the South African Government, SARS, ITAC, Veterinary Services, NAMC and other regulatory bodies. • To disseminate amongst it’s Members information on all matters affecting the Meat Industry. • To correspond and liaise with any similar Associations in other countries. • To promote, support or oppose any legislation affecting the rights or objects of the Association and its Members. • To promote ethical business practice amongst all Association members and in the meat industry.

5. Imports in Context: • Market Size • Import participation • Jobs • Domestic advantage • Current Duty Structures • SPS • Why Import • Affordable alternatives • Consumer choice • Supplement local production • Balancing supply and demand • Food security

6. Market Size • Market Size • + 2 billion kg pa • +R 35 billion pa • Imports less than 10% by volume and value • Bone in Imports 2013: 144 million kg <7% of consumption • Water sold as Chicken +500 million litres pa • Big 5 >70% of Market • > 70% sold as IQF (individually quick frozen) (brined 30%+)

7. Domestic Production Vs Imports 2006-2013 Annex 2(expressed in kg)

8. Bone in cuts 4 year review

9. Bone in cuts 4 year review (monthly)

10. Jobs in the import sector • Local Jobs direct 5,000 • Indirect (making consumer ready) 10,000 • Domestic product leaves highly mechanised factories in Retail Ready packs. • Imported product arrives in bulk and has to be converted into Retail Ready form. (the two do not compete) These are real jobs which do exist

11. Domestic Advantage: • Export Costs • Freight • Clearing Costs • Duty • Domestic “retail ready” • Imports SPS requirements

12. Duty Structure: Five tariff Headings Current • 0207 12 20 CCS 31% • 0207 12 90 W/Birds 82% • 0207 14 10 B/less 12% • 0207 14 20 Offal 30% • 0207 14 B/in 37% • EU Free TDCA

13. SPS: • All Import containers subject to export inspection and certification • All import containers subject to inspection at Port of Entry • All import containers subject to Laboratory testing • Bacteria and pathogens • Import requirements amongst most stringent in the world

14. Fallacy • Cheap Imports: • Customs declared values: are ex works prices • Add Freight and shipping costs • Add Clearing and import costs • Add Cold Storage costs • Add Importers overhead costs • Add Storage Costs • Add Transport and Sales Costs • Add Importer Margin • Add Conversion costs to make retail ready

15. Current Scenario: • Chicken Leg ¼ land in store at R 21.00 excl Vat • Conversion and Packing • Add Vat and Margin • Selling Price R 30.00/kg to R38.00/kg • IQF 2 kg land in store at R 19.50 excl Vat • Selling Price R 25.00/kg • The Consumer is making a choice to buy the imported product

16. Challenges: • Food “Insecurity” • Market Access • Brining • Currency • Tariff Protection

17. Food Insecurity: • 48% by low income households spent on basic foodstuffs of which chicken (animal protein) is the largest portion • Chicken inflation way higher than 4.4% inflation and above 6% SARB target • Current Chicken inflation above 8.5% !! • Source NAMC February2015 Food Review • Our Consumer should not be forced to pay more than necessary for basic foodstuffs

18. Market Access: • Exports • SADC • 3rd Countries • No National Certification standard • SA Disease Status (Newcastle, AI) • Brining (most import countries do not want/allow brine) • No National Strategy

19. Market Access • Imports • High Sanitary requirements • Time to Process new market applications • Capacity • Priorities • Deemed Protectionist Policies • Re-opening of closed Markets

20. Brining: • Mainly Performed by large producers • Barrier to Entry for New Entrants • Lack of access to technology and capital • Moral Theft • Increased Sodium levels (health concerns) • Not Cheap Chicken but Expensive Water • AMIE Supports Brining LIMITS of original proposed 4%

21. Nutrient dilution through brining

22. Tariff Protection: • Current Tariff Structure supports current flawed business model • Model needs to change to persuade Global Competitiveness

23. Building a globally competitive industry

24. Currency as protection • The Rand has • Depreciated • 34% against U$ • And 27% • Against Euro • Over past 2 years • Natural import protection • (Source XE.com) ‘Jan 15

25. What has changed since 2012? • Feed cost reduction R 7 bn Rand pa • SAPA Return to great profitability • More stable labour relations • Currency Depreciation 27% - 33% • Avian Influenza

26. Opportunities: • Exports • SADC • Niche markets • Extract Best Value per cut • Wasted Costs • Nested Duties (savings of R 750 m p.a -SOYA) Create a CIDP (Chicken Industry Development Plan) with all role players

27. Thank you

28. Water sold as chicken every year twice the volume of imports!! Annex 3 • Imported Volume compared to Brining (2012) • Extracted from Farmers Weekly

29. Local Chicken Industry Productivity disadvantage(due to flawed business model) Annex 4

30. Addicted to Protection Annex 5 • History of protection 1997-current • 1997 B/In R 2.20 (2 years) (BTT BR4078) • 2001 USA Dumping • 2004 Duty Increase • 2006 USA Dumping Sunset Review • 2006-13 Brining (hugely profitable) • 2011 USA Dumping Sunset review • 2012 Brazil Dumping application • 2013 Duty review (non EU) • 2014 Avian Flu • 2015 DD EU (Holland, UK, Germany)