Key Market Signals in the Broiler Industry. For the. second quarter of Q 2017

Transcription

1 Key Market Signals in the Broiler Industry For the second quarter of Q P a g e

2 Table of Contents EXECUTIVE SUMMARY 4 1. TOTAL POULTRY IMPORTS (INCLUDING TURKEY, DUCKS, GEESE) MONTHLY: TOTAL POULTRY IMPORTS QUARTERLY: TOTAL POULTRY IMPORTS ANNUAL: TOTAL POULTRY IMPORTS (2016) BROILER MEAT PRODUCTION AND TRADE BROILER MEAT PRODUCTION Broiler breeders Broiler chick placements Broiler production for slaughter (bird numbers) Broiler and breeder meat production (tonnes) BROILER MEAT IMPORTS Monthly: total broiler imports Quarterly: total broiler imports Annual: total broiler imports Frozen broiler imports BROILER MEAT EXPORTS Quarter Annual PRICE TRENDS PRODUCER PRICES Producer prices in real terms Broiler prices in comparison with pork, beef and eggs In comparison with pork, beef and egg during the 1Q SA prices in comparison with the USA RETAIL PRICES Retail price of chicken Fresh chicken portions Frozen chicken portions FEED PRICES Broiler feed price indicator Broiler breeder feed price indicator Feed price index vs broiler price ECONOMIC OVERVIEW GLOBAL POULTRY OUTLOOK THE SOUTH AFRICAN ECONOMIC OUTLOOK AND POULTRY MARKET 52 2 P a g e

3 List of Figures Figure 1: Poultry imports from the European Union as a percentage of total poultry imports Figure 2: Country of origin of poultry imports into South Africa for 2 nd quarter of 2017 Figure 3: Country of imports for 2 nd quarter, showing the EU countries as a single entity Figure 4: Quarterly imports of broiler meat originating from Brazil, according to tariff codes Figure 5: Origin of total broiler imports in 1H 2017, with EU countries grouped together Figure 6: Percentage contribution of member countries to total EU poultry imports: 1H 2017 Figure 7: Annual frozen broiler meat imports from the European Union, Brazil and others Figure 8: Imports of frozen bone-in portions from the EU (presented as a single entity) in comparison with the rest of the countries combined Figure 9: Annual frozen broiler meat imports from EU countries: 2015, 2016 and 2017 YTD Figure 10: Total annual poultry exports out of South Africa (tonnes) Figure 11: Quarterly weighted average producer price for total sales realisation Figure 12: Average annual weighted producer price for total sales realisation Figure 13: Quarterly broiler meat product mix: 1Q 2017 Figure 14: Broiler producer price in nominal and real terms: annual averages (2017 YTD April) Figure 15: Broiler producer price in nominal and real terms: monthly values (to April 2017) Figure 16: Broiler producer price index vs food inflation index (bases 2008 and 2012) Figure 17: Annual producer prices of protein sources: 2015, 2016 and 2017 YTD (April) Figure 18: Monthly producer prices of protein sources (broilers to April 2017 only) Figure 19: USA leg quarter and deboned skinless breast prices (cents per pound; USDA) Figure 20: USA broiler prices in comparison with the local IQF and whole bird producer price (NSV); to April 2017 for RSA data Figure 21: Retail price of chicken meat: annual averages (source: Statistics SA) Figure 22: Retail and producer price of fresh chicken (source: Statistics SA) Figure 23: Retail and producer price of frozen chicken portions to Dec 2016 and 2 kg IQF bags from January 2017 (R/kg; source Statistics SA) Figure 24: Broiler feed price indicator, monthly from January 2012 to April 2017 (source: SAPA) Figure 25: Broiler breeder feed price indicator, monthly from January 2012 to April 2017 (source: SAPA) Figure 26: Year-on-year percentage change in broiler feed price and producer price to April 2017 (source: SAPA) List of Tables Table 1a: Distribution of imports according to tariff (chicken) Table 1a: Distribution of imports according to tariff (turkey, geese, ducks, guinea fowl) Table 2: Broiler industry bird numbers (April 2017) 3 P a g e

4 EXECUTIVE SUMMARY Total poultry imports (including turkey, ducks and geese): In March 2017, imports rocketed to record highs of t, before moderating to t and t in April and May. In June 2017, t of poultry meat were imported; t less than in the previous month ( %). Poultry imports were valued at R504.5 million (FOB) in June. Chicken products accounted for 95.4 % of these imports. In June 2017, Brazil imports totalled t (52.0 % of total poultry). The US was in second place with t of poultry imports to South Africa (17.9 % of total; cf 2.8 % in November 2016). The EU accounted for t (18.5 %) of total poultry imports in June 2017 (cf 63.1 % in November 2016). EU imports were down 69.3 % on June 2016 levels ( t) because of AI-related trade bans. On a quarterly basis, tonnes of poultry meat were imported at an FOB value of R1.61 billion. During the 2Q 2017, imports from Brazil made up 58.2 % ( t) of total poultry imports into South Africa. Of these Brazilian imports, 61.4 % were mechanically deboned meat (MDM). The EU contribution to total poultry imports in 2Q 2017 was t (19.3 %). Of the EU imports, 80.5 % were frozen bone-in chicken portions. During 2016, a total of t of mixed poultry products were imported at an FOB value of R5.48 billion; a 17.1 % increase over 2015 imports ( t), in tonnage terms. If it had not been for the effect of AI-related trade bans on December imports, 2016 imports would have been 20 % higher than last year. Poultry imports in the 1H 2017 reached tonnes at an FOB value of R3.07 billion; down 5 % on the 1H 2016 but up 24 % on the 5-year average for this six month period ( ). Broiler production: Note: production figures are not available for May and June 2017 and, therefore, 2Q 2017, because too few producers contributed to the monthly SAPA survey. An average of day-old parent pullets was placed per week in April This was an increase of 18.5 % on March 2017 placements, but a decrease of 8.8 % compared to April A total of million day-old parent pullets were placed in 2016; 4.2 % less than The average number of breeder hens for April 2017 was million. The average flock size for 2016 was million; (+ 1.8 %) more breeder hens than in Broiler hatcheries produced million day-old chicks per week in April In total, million broiler chicks were hatched during 2016; 23.2 million (- 2.3 %) less than On average, million broilers were produced per week in April A total of million broilers were produced for slaughter in 2016; 29.4 million (- 3.1 %) less than in Broiler meat produced in April 2017 was tonnes. The combined total of broiler and culled breeder meat in 2016 was million tonnes; tonnes (+ 0.9 %) more than in P a g e

5 Broiler meat imports: In June 2017: t of broiler products were imported into South Africa at an FOB value of R447.4 million. 2Q 2017: t of broiler meat imports were imported into South Africa at an FOB value of R1.52 billion. On a volume basis, this is a decrease of 7.6 % on first quarter levels. 2016: t of broiler products were imported, accounting for 94.3 % of the total poultry products imported through The broiler imports for 2016 had an FOB value of R5.021 billion. Broiler imports for 2016 were 15.6 % higher than in 2015, despite outbreaks of avian influenza in some European exporting countries. In 1H 2017, broiler imports totalled t; at an FOB value of R2.88 billion. In 2016, frozen broiler meat accounted for 99.9 % of total broiler imports. In 2016, frozen broiler imports hit t and 49.7 % of frozen broiler imports came from the EU, 41.3 % from Brazil and 4.7 % from the US. Frozen broiler imports totalled t in 2Q 2017; down 6.1 % on 1Q 2017 levels. Broiler meat exports: During 2Q 2017, tonnes of broiler products were exported at an FOB value of R million; down 1.3 % on first quarter levels and down 15.1 % compared to exports of broiler meat during the second quarter of Annually, a total of tonnes of broiler products were exported during 2016 at an FOB value of R1.18 billion. In 1H 2017, South Africa exported tonnes of poultry product, valued at R590.4 million, FOB. Broiler pricing: Note: producer prices are not available for May and June 2017 and, therefore, 2Q 2017, because too few producers contributed to the monthly SAPA survey. The average broiler producer price (realisation/nsv) for April 2017 was R The average producer price for broilers for 2016 was R18.65; up 1.2 % on 2015 average pricing. In real terms, adjusted for inflation, the broiler producer price decreased by 4.6 % through 2016; and still remains below the R13.55 average price realised in The average retail price for whole, fresh chicken in the 1H 2017 was R44.05 per kg (Stats SA). The retail price of whole frozen chickens in 2Q 2017 was R The average retail price for 2016 was R41.83 per kg. The average retail price for fresh chicken portions in the 1H 2017 was R56.15 per kg (Stats SA). The average retail price for fresh chicken portions in 2Q 2017 was R56.38 per kg. In 2016, the average retail price of fresh chicken portions was R53.71 per kg, compared to an average producer price of R29.99 per kg. 5 P a g e

6 The average retail price for frozen chicken portions (using Stats SA s historical calculation) in 2016 was R28.75 per kg; compared to a producer price of R20.33 (a mark-up of 41.4 %). The average retail price for 2 kg IQF bags in the 1H 2017 was R31.11 per kg (Stats SA). In 2Q 2017, the average retail price (R/kg) for 2 kg IQF bags was R The average retail price for frozen chicken portions, excluding IQF bags, in 1H 2017 was R43.50 and in the 2Q 2017 was R44.56/kg. Feed price indicators: Note: producer feed prices are not available for May and June 2017 and, therefore, 2Q 2017, because too few producers contributed to the monthly SAPA survey. The feed price indicator for April 2017 was R5 248 per tonne. The average broiler feed price for 2016 was R5 602 per tonne. This is 13.5 % more than the average feed price for 2015 (R4 934). The higher prices experienced in the second half of 2015 (R4 987) and through 2016 (R5 602 average) are a result of the severe drought experienced through the 2015/2016 season. The average breeder feed price for April 2017 was R5 127 per tonne. The average broiler breeder feed price for 2016 was R5 255 per tonne. This is an increase of 22.6 % in comparison with 2015 (R 4 286). World poultry outlook 2016: The South African poultry industry is facing an unprecedented threat from outbreaks of highly pathogenic avian influenza, in seven of the nine provinces. After an initial event in Zimbabwe, HPAI H5N8.was confirmed as the cause of high mortality in broiler breeders near Villiers in late June. A second outbreak in laying hens was then reported from Standerton. Since then, outbreaks have occurred in Gauteng, the Western Cape, KwaZulu-Natal, North West, the Northern Cape and, mostly recently, in the Eastern Cape. In addition, State Veterinarians have reported 23 outbreaks in wild birds and hobbyist birds in a second report to the OIE (15 September), which covers all cases listed to 1 September. A total of 351 deaths were recorded in these birds. Migrating waterfowl are thought to be spreading the virus south from Europe, since the H5N8 strain is the same one that has been identified in European outbreaks. In the 28 outbreaks reported to the OIE thus far, South African veterinary services claim that birds have been culled, with further deaths caused by the virus itself. However, on 21 September, the Western Cape confirmed it was dealing with 26 outbreaks of H5N8 HPAI and that two millions ducks and chickens have been culled in this province alone. The Department of Agriculture, Food and Fisheries is considering vaccinating birds against avian influenza in an attempt to control the disease. A decision was promised by the end of September. The Minister of Agriculture has said that the Government would consider allowing the importation of fertile eggs to replace lost stock. By mid-september, DAFF had only agreed to compensate farmers for uninfected birds culled as a result of measures to prevent the spread of an AI outbreak. Detailed guidelines on how compensation will be applied are still not available from the Department. 6 P a g e

7 On 24 July, Belgium reported two outbreaks of HPAI in birds belonging to traders supplying hobbyists. This event expanded and currently totals 1650 cases in West Vlaanderen. The last case in this event was recorded on 20 June. This is the first HPAI event in domestic poultry in Belgium in seven years. In France, local producers estimate that some 3.2 million birds have been lost to the disease or in pre-emptive culls through 2016/2017. On June 30, the French suffered yet another outbreak of H5N8 on the Franco-Belgian border, close to where outbreaks have been occurring in Belgium. The Dutch have officially declared that their avian-influenza free-status has been regained, under the terms of Article of the OIE Terrestrial Animal Health Code (2016). Since 7 December 2016, Germany has notified the OIE of 286 outbreaks of H5N8 HPAI in wild birds and commercial poultry. Over birds have been destroyed as part of control measures. On 11 August 2017, the Germans submitted final reports on all their HPAI events to the OIE, announcing that all have been resolved. Since 1 December 2016, Hungary has reported 294 outbreaks ( cases) of H5N8 HPAI in poultry operations housing fattening turkeys, geese and ducks. Almost 2 million birds have been culled. The Hungarians submitted final reports on their outbreak on 16 June The UK suffered renewed outbreaks in May in Pembrokeshire (Wales), Lancashire and Norfolk. A final report on this latest UK outbreak was submitted to the OIE on 13 September Outbreaks of highly pathogenic avian influenza in Poland, Denmark, Spain and the US in 2016/2017 are all considered resolved in terms of OIE directives. In 2017 to date, there have also been reported cases of highly pathogenic avian influenza (H5N8) in Bulgaria, Bosnia and Herzegovina, Cameroon, China, Chinese Taipei, Croatia, Czech Republic, Democratic Republic of Congo, Egypt, Finland, India, Iran, Israel, Italy, Kazakhstan, Kuwait, Lithuania, Luxembourg, Macedonia, Nepal, Niger, Nigeria, Portugal, Romania, Republic of Korea, Russia, Serbia, Slovakia, Slovenia, Switzerland, Sweden, Tunisia, Uganda, the Ukraine and Zimbabwe. In addition, the following countries have reported the H5N1 strain: Bangladesh, Cameroon, Cambodia, China, Côte d Ivoire, India, Iran, Laos, Libya, Malaysia, Myanmar, Nepal, Niger, Nigeria, Togo, Vietnam and Zimbabwe. China, Chinese Taipei and the US have reported H5N2. There have been reports of H7N9 in China and the US. Chinese Taipei lays claim to H5N6, along with China, France, Greece, Hong Kong, Japan, Republic of Korea, Laos, Myanmar, the Philippines and Vietnam. The H5N5 strain has been reported in Croatia, Italy, Netherlands, Germany, Greece, Poland, Serbia and the Czech Republic in Mexico reported H7N3 in May. France has reported H5N9. Global poultry production in 2017 is estimated to be 0.4 % higher than in 2016, at million tonnes (FAO Food Outlook June 2017) Trade in poultry products is set to be 2.9 % higher than 2016 levels, at 13.2 million tonnes. Global food prices in 2017 YTD (September) are, on average, 10.5 % higher than in the same nine months of Cereals have only increased 1.8 % in this period. The FAO predicts a record global cereal crop of million tonnes in Brazilian poultry meat exports dropped by 4.7 % in 1H 2017 compared to 1H 2016 (ABPA) because of the weak flesh scandal. Although competitive pricing has helped exports recover in the 3Q 2017, Brazilian exporters are now subject to more stringent conditions imposed by 7 P a g e

8 importing nations. The EU has introduced tougher requirements for the importation of Brazilian meat products. The approval process for accreditation has been tightened and Brazilian poultry imports will subject to mandatory pre-export microbiological tests; and consignments sampled to be certified salmonella-free. Clouds looming on the horizon include a problematic audit of the Brazilian Competent Authority by the EU s Food and Veterinary Office (FVO) and an antidumping investigation by the Chinese into Brazilian poultry. The USDA estimates 2016 US production at 18.5 million tonnes (+ 1.6 % compared with 2015) and predicts broiler production will increase by 1.95 % in 2017 (to million tonnes). Broiler exports rebounded by 5.2 % to 3.02 million tonnes in 2016 and the USDA predicts a 2.6 % growth in US broiler exports in 2017, to 3.1 million tonnes (a downward revision from 4.9 %). Leg quarters in September 2017 cost 17.6 % more than in September 2016 but are still 20 % below September 2014 prices (before the AI outbreak). Producer margins have improved recently in the US, reaching record levels in the 2Q The World Bank expects the Russian economy to grow by 1.3 % in The FAO predicted the Russian poultry industry would grow by less than 1 % in 2017 but favourable feed prices and expansion in the retail and fast food sectors look set to support growth of 3.75 % in 2017 (to 3.87 million tonnes; USDA). At the end of September 2017, the rouble was about 8 % higher than in September 2016, putting pressure on exports. In May, the Russian veterinary body found cases of avian-influenza contaminated meat on shelves in several regions, thought to have originated at a turkey facility in Rostov Oblast. Russia has been experiencing outbreaks of H5N8 avian influenza through 2016, with a total of 33 outbreaks reported under Event 3 ( cases and over 2.8 million birds dead or culled). In June, the EU extended sanctions against Russia for a further 6 months, and this resulted in a tit-for-tat extension of the Russian trade embargo against the European nations and their allies to the end of Domestic consumption of poultry products within the EU is forecast to grow by less than 1 % in The EU Commission is currently predicting growth in poultry production of 3 % for 2017, to 15.1 million tonnes (EU Short Term Outlook); and of 4.3 % for broilers, to 12.2 million tonnes. The FAO pegged 2017 EU growth in poultry production at less than 1 % but in the EU Commission s September EU Market Situation for Poultry, forecast production between January and August 2017 is still around 3.1 % higher than in the same eight month period in EU broiler prices firmed from April through August; exceeding 185/100 kg carcass weight several times through the summer barbeque months. Prices have begun to fall from mid- September, to 181.4/100 kg in Week. Broiler prices in the 3Q 2017 are around 3.3 % higher than in the same period in 2016, but remain firmly below 2014 and 2015 prices. Exports from the EU increased by over 9 % in 2016 but 1H 2017 exports are only 0.2 % up on 1H 2016 levels. With domestic prices now dropping and many AI events declared closed, the EU will become more competitive in the global market place. Some evidence of this growth could already be seen in the 2Q In 1H 2017, EU exports to South Africa have fallen 66 % compared to 1H 2016 to 5.8 % of the total. Four other African countries (Ghana, Benin, Gabon and the Democratic Republic of Congo) accounted for 22.8 % of EU exports in the 1H The EU exports larger quantities of low value products and imports much smaller quantities of 8 P a g e

9 higher-value products. This speaks to the imbalance in EU eating habits when it comes to poultry meat. On a per kilogramme basis, the value of imported goods is almost exactly twice that of exported goods. Imports into the EU were down 9.4 % in 1H 2017, from tonnes to tonnes. Brazil remains the biggest exporter to the EU in the 1H 2017, but Brazilian imports are down 16 % compared to 1H 2016 because of the weak flesh scandal. Imports from Thailand are down 11 %. The Ukraine, in contrast, has grown market share by 80 % over 1H 2016 levels. The FAO predicts poultry production in China will drop by as much as 10 % in 2017; a second year of decline. The USDA currently forecasts Chinese production at 11 million tonnes in 2017, considerably down on earlier forecasts. In the 2017 bird flu outbreak in China (from October 2016 to July 2017), there were 281 human fatalities reported, from about 759 cases. Transmission of the H7N9 strain between humans is not common, with about 90 % of sufferers contracting the disease by handling poultry. In birds, the H7N9 strain is mutating quickly and causes high levels of mortality in chickens, whilst evading vaccines. The Chinese ministry of agriculture announced that poultry will be vaccinated against avian influenza virus on a nationwide basis from September, using a bivalent inactivated vaccine (H5 and H7 strains). China has blocked US access to its beef market since cases of mad-cow disease were detected in US cattle in The Chinese have now opened this door again, in return for the US accepting its inspection protocols for fully cooked poultry as equivalent to those used in the US. This acceptance (July 2017 review) essentially opens up the US market to Chinese poultry products. To date, China has been able to process, pack and export poultry product grown elsewhere, in certified nations, but will now be allowed to slaughter and process its own chicken, turkey and ducks for the US market (foodnavigator-asia.com). The South African economic outlook and poultry market: Whether 2017 is a good or a bad year for broiler producers rather depends on avian influenza. Good rains in the maize-growing regions of the country supported a bumper harvest this season and global soybean prices have also moderated so the industry should be returning to profitability and growth. For this to happen, producers will be hoping that trade bans remain in place against EU producers affected by HPAI and that, at home, they are able to avoid the H5N8 virus currently spreading across South Africa. To date, most of the infections have been in older birds (layers and breeders) and consumers have not reacted adversely to the arrival of bird flu on these shores. There has been no noticeable avoidance of chicken products as happens in China. However, high volumes of frozen broiler products continue to stream into the country, putting downward pressure on producer prices and discouraging the private sector investment needed to grow the industry. The political drama in South Africa continues as we move into the last quarter of Tensions remain high, especially in KwaZulu-Natal and the Eastern Cape, and threaten to derail the ANC s December elective conference. Despite improved economic growth in the second quarter, forecast growth for the whole year remains below 1 % and pundits see the second quarter results as an agricultural recovery, rather than firm evidence of a growing economy. Credit rating downgrades, which would exclude the 9 P a g e

10 country from important investment indices, continue to loom on the horizon, threatening economic recovery further. The country is turning increasingly to the courts and social media campaigns to protect society from its own government ahead of the 2019 general election. Lingering drought Besides avian influenza, broiler producers in some regions still face challenges from lingering drought. On September 18, dam levels in the nine provinces were as follows: Western Cape 37 % (only 27.5 % usable); Eastern Cape (56 %); Free State 76 %; Gauteng 87 %; KwaZulu-Natal 50 %; Limpopo 72 %; Mpumulanga 73 %; North West 81 % and Northern Cape 86 %. The Bloemfontein Supply System is at 38 % and the Vaal River System at 77.8 %. In its August 2017 Seasonal Climate Watch briefing, SAWS indicated the possibility of higher than average rainfall in the north-eastern regions of the country during the months October to December but not in the south western parts of the country. The El Niño Southern Oscillation (ENSO) remains neutral and is unlikely to have any specific influence on South Africa through the rest of South Africa is forecast to consume R10.47 million tonnes in the 2016/2017 season (AgBiz), whilst the harvest is currently expected to be 16.4 million tonnes (Crops Estimate Committee). A total of 2.2 million tonnes of maize were imported for use in South Africa between 30 April 2016 and 27 April 2017 (SAGIS); while exports totalled almost tonnes. South Africa will regain its status as a net exporter of maize this year but, while in excess of 4 million tonnes should be available for export, actual volumes are expected to be considerably lower. ` On 20 September, maize futures for December delivery of white and yellow maize were set at R1 935/t and R2 048/t, respectively. Maize futures for March 2018 delivery were set at R1 973/t and R2 091/t for white and yellow maize, respectively. Soybean futures, for December and March delivery, have moderated to R4 843 and R 4 930/tonne respectively, as of 20 September. Dumping of frozen broiler meat In 2016, almost tonnes of bone-in imports arrived in South Africa from the EU. Imports as a percentage of domestic broiler consumption increased to 24.9 % in Had the AI-related trade bans not taken effect in December, this figure would have been 25.6 % (if December tonnages are estimated on a six month average). Avian influenzarelated trade bans have been imposed at some point during 2017 against the majority of European nations which export poultry to South Africa. Despite this, broiler imports to the end of August were only 3.7 % below levels imported in the same eight months of The EU has channelled imports through Belgium, Spain, Ireland and, more recently, Denmark since Holland, Germany, France and the UK have been hit by avian influenza. Brazil, the US and Argentina have all stepped in to take up tonnages lost by the Europeans. Broiler imports to the end of August 2017 have reached tonnes; with frozen bone-in imports at tonnes. The AI outbreaks in Europe provided only temporary relief from the onslaught of frozen broiler imports. 10 P a g e

11 In response to rising job losses in the poultry sector, the Department of Trade and Industry (dti) announced the establishment of a task team in November 2016 to address the challenges facing the industry. The task team was supposed to look for solutions which might include trade measures, tariffs, industrial finance, incentive schemes, export support and state procurement procedures. Almost a year on, there seems to have been very little concrete action taken. There has been some work on an export programme, but HPAI has closed trade doors indefinitely and thrown into sharp focus the need for solutions which ensure a vibrant domestic industry which can grow and create jobs, with or without exports. The FairPlay initiative has questioned the lack of reports or concrete measures emanating from the task team since 1Q It is time Minister Davies communicated his solutions and recommendations to the industry more clearly. In response to a further safeguard application to the International Trade Administration Commission (ITAC) in July 2016, ITAC issued a second essential facts letter which states that the South African industry is suffering a threat of serious disturbance from imports; that the main cause of the disturbance is from EU imports; and that exceptional circumstances exist. They imposed an interim safeguard tariff of 13.9 % to correct the imbalances in December 2016, which will be in place until 3 July 2017 while they complete their investigation. This tariff is widely regarded as being too low to be effective and SAPA are working with ITAC in an attempt to have it raised to the MFN (most favoured nation) tariff of 37 %. The final decision on the matter has been sent by ITAC to Minister Davies. He will have to discuss his own decision through a formal Economic Partnership Agreement (EPA) process with the EU before he can publish the outcome in the Government Gazette. Reduced consumer spending in a recessionary environment Headline inflation averaged 6.4 % in Inflation peaked at 6.8 % in the 4Q 2016 but had reduced to 4.6 and 4.8 % in July and August, respectively. Inflation is expected to stay within the target range for the forecast period (SARB). Food price inflation rose from 5.9 % in December 2015 to 11.7 % in December In August 2017, food price inflation was 5.7 % (NAMC). The unemployment rate in the 2Q 2017 remained at 27.7 % from the previous quarter. The expanded unemployment rate, which includes discouraged workseekers, is 36.6 %. The country entered recession in 1Q The mining and agricultural sectors pulled the economy out of recession in 2Q Despite this, in September the International Monetary Fund slashed its growth forecast for the South African economy to 0.6 % for 2017, citing declining productivity and lack of investment in research and development. At its July Monetary Policy Meeting, the South African Reserve Bank also drastically reduced its forecast for 2017 to 0.5 % but revised this upwards to 0.6 % in its September statement, following higher than expected growth in the second quarter (+ 2.5 %). A volatile South African rand On 31 March, South Africans woke up to find that the hugely respected Finance Minister, Pravin Gordhan and his deputy, Jonas Mcebisi, had been replaced in a cabinet reshuffle. 11 P a g e

12 Standard and Poor s moved quickly to downgrade South Africa s sovereign credit rating to below-investment level and Fitch Ratings announced a similar downgrade on both foreign and local debt at their scheduled meeting on 7 April. At their regular June meeting, Moody s did as expected and cut South Africa s credit rating by one notch to BAA3 and assigned a negative outlook the BAA3 level is just one notch above junk status. A few days later, Moody s downgraded the country s top five banks to the same BAA3 level. In mid-year, Fitch and Standard and Poor s affirmed South Africa s BB+ rating, attaching a stable and negative outlook, respectively. The country also survived a further downgrade by Moody s to below investment grade and Moody s stood by their BAA3 (lowest investment grade) rating in August and September; albeit it with a negative outlook. The agencies all cite political tensions, policy issues and weak GDP growth as factors which hamper economic reform and undermine investor confidence. On September 16, the currency closed at R13.18 : $1. Much of the rand s performance since April has been attributable to a weak dollar, rather than to positive domestic catalysts. The relationship between the rand and the dollar has been a series of peaks and troughs since the cabinet reshuffle, with the currency strengthening below the R13-level on April 23 (French vote against far-right Le Pen), mid-june (poor US inflation/cpi data; Chinese talk of infrastructural development), the end of July (Mining Charter suspended; drop in US retail sales); and the first week of September. Conversely, the rand was weakest in early May (cabinet reshuffle on March 26), early-july (the introduction of the Mining Charter; Public Protector s suggestion of remedial action against the Reserve Bank), and mid- August (Zuma survived vote of no-confidence). The US dollar depreciated by 6.4 %, year on year, in 1H 2017 as Europe s economy picked up steam. The rand has weakened steadily through September as the dollar begins to strengthen. Long term, the risks to the downside for the currency are high and include the likelihood that South Africa will be downgraded further by the credit rating agencies in P a g e

13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Key market signals in the Broiler Industry 2Q TOTAL POULTRY IMPORTS (INCLUDING TURKEY, DUCKS, GEESE) 1.1 MONTHLY: TOTAL POULTRY IMPORTS In December 2016, poultry imports decreased dramatically by 32.2 % on a monthly basis because of a raft of AI-related trade bans against EU nations. In January and February 2017, poultry imports recovered somewhat as markets adjusted, to t and t, respectively. March imports then rocketed to record highs of t, before imports moderated to t and t in April and May. In June 2017, tonnes of poultry meat were imported; t less than in the previous month ( %). Poultry imports were valued at R504.5 million (FOB); down R101.7 m on May 2017 levels ( %). During June 2017, poultry imports consisted of 95.4 % chicken meat and product, 4.6 % turkey meat and product; and only 0.05 % ducks, geese and guinea fowl. With the Netherlands banned from the South African poultry market, Brazil has been the main country of origin for poultry imports since December 2016, with the exception of March 2017, when the US shipped t of product to South Africa (38.2 % of total imports that month). In June, Brazil imports totalled t (56.0 % of total). The US was in second place with t of poultry imports to South Africa (17.9 % of total). Belgium was responsible for 8.0 % (3 416 t) of the total imports in June; Ireland 6.6 %; Argentina 4.4 %; Denmark 3.8 %; Canada 2.8 % and Thailand 0.3 %. Other countries contributed 0.03 % collectively. Tonnes 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Poultry imports from EU vs total poultry imports 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Poultry imports from EU, % Poultry imports from EU, t Total poultry imports, t Figure 1: Poultry imports from the European Union as a percentage of total poultry imports 13 P a g e

14 Only 795 kilogrammes of poultry product arrived from France in June, because of AI-related restrictions on trade. Germany has also been excluded from the market but, in May and June, the Germans exported 22 and 11 tonnes of poultry product to South Africa, respectively. Canada s 2015 avian influenza woes have not reoccurred and Canada exported t to South Africa in June 2017, compared to t from Argentina. Poland entered the South African market in August 2016 and Polish volumes had increased to t by November last year. The country has since experienced on-going outbreaks of HPAI and no poultry imports were received from Poland through to June The Poles can be expected to return to the market soon, along with the Hungarians. Figure 1, above, shows the percentage of total imports originating from the European Union. Imports from the EU contributed 18.5 % (7 840 t) of total poultry imports into South Africa in June 2017 (cf 63.1 % in November 2016). EU tonnages were down 21.1 % ( t) on a monthly basis. Imports are down 69.3 % ( t) on June 2016 EU imports because of AIrelated trade bans. 1.2 QUARTERLY: TOTAL POULTRY IMPORTS During 2Q 2017, tonnes of poultry meat were imported at an FOB value of R1.61 billion. The distribution of imports according to tariff codes is listed below in Tables 1(a) and (b). Table 1a: Distribution of imports according to tariff (chicken) Tariff code Imports: 2Q 2017 (kg) % of total Mechanically deboned meat Carcasses Whole frozen fowls Cuts and offal, fresh or chilled <0.1 Frozen (boneless portions) * Fowls offal * Poultry (bone-in portions) (leg quarters) * Chicken: flavoured, herbed or marinated Table 1b: Distribution of imports according to tariff (turkey, geese, ducks, guinea fowl) Tariff code Imports: 2Q 2017 (kg) % of total Frozen turkey portions and MRM Ducks other, frozen Goose: pâté de foie gras <0.01 Prepared/preserved turkey Pastes, not chicken <0.01 Other poultry, prepared, not pastes <0.01 During the 1 st quarter of 2017, imports from Brazil made up 58.2 % of total poultry imports into South Africa (Figure 2). The US and Belgium accounted for 13.8 % and 9.3 % of total imports in 14 P a g e

15 the 2Q 2017, respectively. Ireland contributed 5.6 %; Denmark and Argentina 4.2 % each; Canada 3.4 %; and Thailand 0.9 %. Country of origin of imports: 2Q 2017 United States 13.8% Belgium 9.3% Brazil 58.2% Ireland 5.6% Denmark 4.2% Argentina 4.2% Other 0.3% Canada 3.4% Thailand 0.9% Figure 2: Country of origin of poultry imports into South Africa for 2 nd quarter of 2017 Country of origin for 2Q 2017 imports into South Africa EU 19.3% United States 13.8% Brazil 58.2% Argentina 4.2% Canada 3.4% Other 0.1% Thailand 0.9% Figure 3: Country of imports for 2 nd quarter, showing the EU countries as a single entity 15 P a g e

16 If the European Union countries are considered as a single entity, the EU contribution to total poultry imports was 19.3 % in the second quarter of 2017 (Figure 3, above), down from 19.6 % in the 1Q 2017 and down from 49.4 % in 2Q Of the total poultry imports from Brazil during 2Q 2017 ( tonnes; Figure 4), 61.4 % entered South Africa as mechanically deboned meat ( ). Poultry imports from Brazil for Q Chicken: Frozen MDM 61.4% Chicken: Carcasses 0.4% Chicken: Whole, frozen 1.7% * Chicken: Boneless portions, frozen 4.7% Chicken: Flavoured, frozen 0.1% Turkey: Frozen MDM 3.4% * Chicken: Bone-in portions, frozen 22.0% * Chicken: Offal, frozen 6.2% Figure 4: Quarterly imports of broiler meat originating from Brazil, according to tariff codes Frozen bone-in portions ( *) made up 22 % of Brazilian imports (up from 14.4 % in 1Q); 6.2 % was frozen chicken offal ( *); 4.7 % frozen boneless portions; 1.7 % whole frozen chickens ( ) and 3.4 % frozen turkey portions and MDM ( ). The remainder of Brazilian imports comprised frozen chicken carcasses and value-added chicken, in small quantities; (Figure 4, above). 1.3 ANNUAL: TOTAL POULTRY IMPORTS (1H 2017) Poultry imports for the year 2016 totalled t; which was an increase of t, or 17.1 %, in comparison with 2015 ( t). If it had not been for the effect of AI-related trade bans on December imports, 2016 imports would have been 20 % higher than in Poultry imports in the 1H 2017 have reached tonnes; down 5 % on the 1H 2016 but up 24 % on the 5- year average for this six month period ( ). On an FOB basis, the total value of imports for 1H 2017 amounted to R3.07 billion, a 9.2 % increase over the 1H 2016 value. 16 P a g e

17 Brazil was the main country of origin in 1H 2017, accounting for 52.0 %, or t, of total poultry imports into South Africa. The United States were the second largest importer into the country, with 19.5 % or t. Belgium and Ireland increased exports to South Africa, in the absence of other EU nations, to account for 8.2 % ( t) and 4.6 % ( t) of 1H 2017 imports, respectively. Argentina increased exports by 12 % over 1H 2016, to total t (4.1 %). Spain held on to sixth place in the table (4.1 %; t), but Spanish imports are down 44 % compared to 1H 2016 because of a trade ban. Imports from Canada increased by 102 % over imports in the 1H 2016, to total t (3.5 % of total imports in 1H 2017). Country of origin for poultry imports (1H 2017) United States 19.5% Belgium 8.2% Ireland 4.6% Argentina 4.1% Spain 4.1% Canada 3.5% Denmark 2.0% Thailand 1.0% Brazil 52.0% Other 0.2% United Kingdom 0.5% Australia 0.3% Figure 5: Origin of total broiler imports in 1H 2017, with EU countries grouped together All other importing countries contributed less than 2 % each to imports of poultry into South Africa in 1H If the EU countries are considered as a single entity, 19.5 % of poultry imports entered SA through the EU in 1H 2017, compared to 48.1 % in 2016 and 47.1 % in the This drop in 1H 2017 reflects the impact of the trade bans on EU countries affected by avian influenza. The percentage contribution of each of the member countries to the total poultry imports from the European Union in 1H 2017 ( tonnes) is shown in Figure 6. The tonnes imported from the EU in 2016 was a 19.9 % increase over the tonnes imported from the EU in 2015 ( t). It should be remembered that imports from the EU were reduced by AI-related trade bans in the 1H 2015, but the 1H 2016 values still represent a 27 % increase over volumes imported in 1H It must also be remembered that EU imports 17 P a g e

18 crashed in December 2016 because of AI-related trade bans. Had normal levels been imported from the EU in December, 2016 volumes would have been over 27 % higher than in Percentage contribution of EU member countries to EU poultry imports: 1H 2017 Spain 20.9% Ireland 23.7% Denmark 10.5% United Kingdom 2.4% Netherlands 0.2% Poland 0.1% Belgium 42.1% Germany 0.1% Figure 6: Percentage contribution of member countries to total EU poultry imports: 1H P a g e

19 2. BROILER MEAT PRODUCTION AND TRADE 2.1 BROILER MEAT PRODUCTION Please note that broiler production data for May and June 2017 are not available, because too few producers contributed to the monthly SAPA survey. This means that it is not possible to calculate 2Q 2017 production figures. April production is given below, along with 1Q data. This report will be updated if the May and June figures become available Broiler breeders Day-old parent pullets placed An average of day-old parent pullets was placed per week in April This was an increase of parent pullets per week ( %) compared to the previous month but a decrease of parent pullets per week (- 8.8 %) compared to the same month in the previous year. On a quarterly basis, an average of day-old parent pullets was placed per week during the first quarter of 2017 (1Q 2017). This was a decrease of per week (- 6.4 %) compared to 4Q 2016 and a decrease of per week ( %) compared to 1Q The total number placed for 1Q 2017 was ; a 6.1 % decrease compared to 4Q 2016 and a 15.2 % decrease compared to 1Q A forecast total of million day-old parent pullets were placed in 2016; (- 4.2 %) less than 2015 (9.849 million). Broiler breeder flock The average number of breeder hens for April 2017 was The average size of the breeder flock during 1Q 2017 was birds. This was an increase of 2.5 % compared to 4Q 2016 and an increase of 0.16 % compared to 1Q The average flock size for 2016 was million; (+ 1.8 %) more breeder hens than in P a g e

20 2.1.2 Broiler chick placements Actual placement: Broiler hatcheries produced million day-old chicks per week in April Compared to March 2017, this was an increase of 2.0 million chicks per week ( %). Compared to April 2016 this was an increase of million chicks (+ 4.2 %). During 1Q 2017 broiler hatcheries produced million day-old chicks. This was an increase of 0.2 % compared to 4Q 2016 but a decrease of 3.3 % compared to 1Q The average weekly placement of day-old chicks for 1Q 2017 was million; a 0.3 % increase compared to 4Q 2016 but a 3.2 % decrease compared to 1Q In total, million broiler chicks were hatched during 2016; 23.2 million (- 2.3 %) less than Industry potential: Based on the forecasting model, potential production of million broiler chicks per week was projected for 1Q The actual production was 14.2 % less than the potential. Potential production of million broiler chicks was projected for 1Q 2017, based on the number of day-old parent females placed. The actual production was 13.4 % less than the potential Broiler production for slaughter (bird numbers) Actual production: On average, million broilers were produced per week in April This was birds (+ 4.9 %) more than the previous month but 1.17 million birds (- 6.4 %) less than the same month of the previous year. The total production for 1Q 2017 was million. This was 5.7 % less than 4Q 2016 and 1.0 % less than 1Q The average production of broilers per week for 1Q 2017 was million. This was a 3.6 % decrease compared to 4Q 2016 but a 0.1 % increase compared to 1Q A total of million broilers were produced for slaughter in 2016; 29.4 million (- 3.1 %) less than in P a g e

21 Industry potential: Potentially million broilers could have been produced per week in 1Q Actual production per week was 14.3 % less. Based on the forecasting model, 266 million broilers were slaughtered during 1Q Actual production for the quarter was 14.9 % less than potential Broiler and breeder meat production (tonnes) Actual production: Broiler meat produced in April 2017 was tonnes. This was tonnes (- 8 %) more than March 2017 but tonnes ( %) less than April Total broiler meat produced for 1Q 2017 was tonnes. This was 7.6 % less than the previous quarter and 6.6 % less than the same quarter of the previous year. A total of million tonnes of broiler meat was produced in 2016; t (- 3.7 %) tonnes less than in Industry potential: The forecasting model predicted the production of broiler tonnes for April Actual production was 16.7 % less than potential. The prediction of broiler tonnes for 1Q 2017 was t, 14.9 % more than actual. A further prediction by the forecasting model was tonnes from the culling of breeder hens and cocks in April The 1Q 2017 prediction was breeder tonnes. Based on the breeder tonnes predicted, and actual broiler production, a combined output of tonnes resulted from the broiler industry for March The total for 1Q 2017 was tonnes. All breeder sales are assumed to be live, whilst a broiler slaughter weight of 1.8 kg, revised from 1.85 kg in July 2015, was used. Total broiler production includes all saleable offal. The combined predicted total of broiler and breeder meat production was million tonnes in 2016; tonnes (+ 0.9 %) more than in The current predicament of the broiler industry leaves the forecasting model s potential data consistently higher than the actual figures. These discrepancies are caused by cutbacks in production as the industry wrestles with the challenges it is facing. 21 P a g e

22 Table 2. Broiler industry bird numbers Note: June s production data not available from producers BROILER INDUSTRY : KEY RESULTS - April 2017 Hatch Calendar Day-old Parent Breeder Actual Broiler Chicks Broilers Slaughtered days Days pullets placed hens placed (based on actual chicks) Month on Month /Month /Month /Month /Week Average /Month /Week /Month /Week April , ,769 6,913,497 79,591,739 19,897,935 73,375,873 17,121,037 March , ,315 6,950,181 80,538,277 17,897,395 79,713,623 17,999,850 Change 35,658 27,454-36, ,538 2,000,540-6,337, ,813 % Change 5.34% 18.51% -0.53% -1.18% 11.18% -7.95% -4.88% Year on Year /Month /Month /Month /Week Average /Month /Week /Month /Week April , ,769 6,913,497 79,591,739 19,897,935 73,375,873 17,121,037 April , ,631 7,167,457 81,151,242 19,094,410 78,381,210 18,288,949 Change -115,606-16, ,959-1,559, ,525-5,005,337-1,167,912 % Change % -8.75% -3.54% -1.92% 4.21% -6.39% -6.39% Full year forecast /Year /Year /Year /Week Average /Year /Week /Year /Week Jan>Dec ,435, ,784 7,125, ,136,544 18,971, ,572,025 17,891,883 Jan>Dec ,849, ,448 6,999,563 1,014,292,266 19,443, ,994,269 18,501,438 Change -413,564-7, ,134-23,155, ,165-29,422, ,555 % Change -4.20% -4.07% 1.80% -2.28% -2.43% -3.05% -3.29% YTD forecast /Period /Period /Period /Week Average /Period /Week /Period /Week Jan>Apr ,779, ,660 6,989, ,633,850 18,951, ,888,649 17,496,359 Jan>Apr ,267, ,418 7,045, ,500,619 19,215, ,264,407 17,779,081 Change -487,973-25,759-55,241-9,866, ,553-7,375, ,722 % Change % % -0.78% -2.98% -1.37% -2.40% -1.59% NOTE: Month or Period: Refers to a calendar month or period Week: Refers to an average 7 day week of which all 7 days fall within the specified month or period 22 P a g e

23 2.2 BROILER MEAT IMPORTS Monthly: total broiler imports Of the t of total poultry products imported into South Africa in June 2017, broiler meat imports accounted for t (95.4 %; t; % on a monthly basis). The FOB value of broiler meat imports (R447.4 million) represents 94.6 % of the FOB value for total poultry imports in June 2017 (R million). Broiler imports during June 2017 comprised 40.7 % mechanically deboned meat (tariff code ); 43.3 % bone-in (leg) portions ( ) and 8.3 % frozen offal ( ). The remainder was carcasses, boneless portions, whole frozen chickens and value-added products Quarterly: total broiler imports Of the t of total poultry products imported into South Africa in 2Q 2017, broiler meat imports accounted for t (95.1 %; t; % on a quarterly basis). The FOB value of broiler meat imports in the 2 nd quarter (R1.52 billion) represents 94.8 % of the FOB value for total poultry imports during this quarter (R1.61 billion) Annual: total broiler imports According to the audited figures of SARS (verified), the annual broiler imports for 2016 totalled tonnes. This figure represents 94.3 % of the total poultry products imported ( t). The broiler imports for 2016 had an FOB value of R5.021 billion. Broiler imports for 2016 were 15.6 % higher than in 2015, despite new outbreaks of avian influenza in some European exporting countries late in the year. In 1H 2017, broiler imports totalled t; at an FOB value of R2.88 billion Frozen broiler imports Of the total broiler meat imported through 2016, 99.9 % was declared as frozen ( t). Frozen broiler meat imports increased by 15.6 % in 2016 over levels imported during 2015 ( t). Frozen broiler imports totalled t in 2Q 2017; down 6.1 % on 1Q 2017 levels. The Brazilian contribution to total annual frozen broiler imports decreased from 77 % in 2009 to 41.9 % in In contrast, the proportion of frozen meat imports from the EU has increased dramatically over a five year period, reaching 51 % of total frozen imports by December 2014, from 2.2 % in Trading restrictions on countries affected by avian influenza reduced EU imports through 2015 and the EU proportion of total frozen broiler imports averaged 42.6 %. In 2016, 49.7 % of frozen broiler imports came from the EU, 41.3 % from Brazil and 4.7 % from the US. In 1H 2017, only 20.2 % of frozen broiler imports into South Africa came from the EU, because of AI-related trade bans in place against the Netherlands, the UK, France, Germany, Hungary, Poland and, more recently, Spain and Belgium. 23 P a g e

24 In tonnage terms, a total of t of frozen broiler meat was imported from the EU in 2016, compared to t in 2015 as a whole, t in 2014 and only t in Frozen broiler imports from the EU totalled t in the 2Q During the 2Q 2017, EU imports accounted for 20.0 % of total frozen broiler imports ( t) into South Africa; compared to 57.9 % in 1Q 2014 (before the 2014/2015 avian influenza bans on several EU countries) and 20.4 % in 1Q Imports of Brazilian frozen broiler products totalled t in 2015 and dropped to t in In 1H 2017, Brazil has exported tonnes of frozen broiler products to South Africa (+ 15 % over 1H 2016). In 2Q 2017, Brazil has exported t of frozen broiler products to South Africa (59 %). The annual tonnages of frozen broiler imports for the EU bloc, Brazil and other nations since 2011 are shown in Figure 7. Tonnes Frozen broiler imports from the EU countries, Brazil and others 300, , , , , , , , , , , , , , , , ,000 50,000 79,545 57,569 52,807 37,565 25,899 36,419 47,720 71,274 52,132 0 Source: SARS H 2017 EU Brazil Other Figure 7: Annual frozen broiler meat imports from the European Union, Brazil and others Figure 8 shows the monthly contribution of the EU to frozen bone-in imports into South Africa over time. The penetration of the EU into this market from 2010 to 2016 is clearly demonstrated in these two figures, along with the effect of trade restrictions (resulting from AI outbreaks) on EU penetration in 1H 2015 and November 2016 to June The contribution of individual EU member countries in terms of frozen broiler imports is shown in Figure 9 for 2015, 2016 and 1H P a g e

25 Belgium Denmark France Germany Hungary Ireland Netherlands Spain UK Poland 103 9,508 9, ,331 10,043 12,570 4,773 13,271 15,342 35,533 24,256 23,082 15,415 25,358 37,564 42,294 61, ,338 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Key market signals in the Broiler Industry 2Q 2017 Tonnes 40,000 Imports of frozen bone-in portions from the EU and other countries 30,000 20,000 10,000 0 Total imports from the EU countries Total imports from countries excluding EU countries Figure 8: Imports of frozen bone-in portions from the EU (presented as a single entity) in comparison with the rest of the countries combined Frozen broiler meat imports from the EU 125, ,000 75, YTD 50,000 25,000 0 Figure 9: Annual frozen broiler meat imports from EU countries: 2015, 2016 and 2017 YTD 25 P a g e

26 Of the total frozen broiler meat imported in 1H 2017 (all nations; t), 35.5 % was mechanically deboned meat ( t) and 48.8 % was bone-in broiler portions ( t). Whole broilers contributed 1.1 %; carcasses 3.4 %; boneless portions 2.2 % and offal 9.1 %. In terms of product mix from the EU, the main product imported in 1H 2017 was bone-in portions, accounting for 80.6 % of the total EU frozen broiler imports. Mechanically deboned meat accounted for only 4.0 % of frozen broiler imports from the EU; with 3.2 % carcasses, 1.9 % whole frozen birds and 10.1 % offal. In tonnage terms, the EU exported t of bone-in portions to South Africa in 2015; in 2016 and in the 1H The EU exported t of frozen MDM in 2015; t in 2016 and t in 1H In 2016, Brazilian imports of frozen broiler meat included 78 % mechanically deboned meat and 8.6 % bone-in portions. In 1H 2017, Brazilian imports included 76.1 % mechanically deboned meat and 11.4 % bone in portions. In tonnage terms, Brazil exported t of MDM to South Africa in 2015; t in 2016 and t in 1H Brazil exported t of frozen bone-in portions to South Africa in 2015; t in 2016 and t in 1H BROILER MEAT EXPORTS Quarter A total of tonnes of poultry products were exported at an FOB value of R314.5 million during the 2Q Broiler exports represented 94.6 % of total poultry exports in the 2Q 2017 ( t), and 94.2 % of the rand value (FOB) of total poultry exports (R296.2 million). Broiler exports decreased 1.3 % compared to first quarter levels, and decreased 15.1 % compared to exports of broiler meat during the second quarter of The main destination countries for broiler exports were Lesotho at t, Mozambique at t, Namibia at t, Botswana at 701 t, the Democratic Republic of the Congo at 419 t, Zimbabwe at 363 t, Swaziland at 338 t, Angola at 312 t, Zambia at 224 and UAE at 202 t of the total tonnes exported Annual: 2016 and 1H 2017 A total of tonnes of poultry products (Figure 10) were exported at an FOB value of R 1.36 billion during This was an increase of 2.2 % over 2015 tonnages ( t). In 1H 2017, South Africa exported tonnes of poultry product, valued at R641.4 million, FOB. 26 P a g e

27 Tonnes Total quantity of annual poultry exports 80,000 70,000 60,000 Chicken Turkey Duck, Geese and Guinea Fowl Ducks, Geese or Guinea Fowl (Pre 2012) 66,355 72,444 74,021 80,000 70,000 60,000 50,000 50,000 40,000 30,000 25,350 30,258 40,000 30,000 20,000 10,000 10,672 8,140 20,000 10, Figure 10: Total annual poultry exports out of South Africa (tonnes) Broiler exports accounted for 93.2 % of total poultry exports in 2016 ( t), and 87 % of the rand value (FOB) of total poultry exports (FOB R1.18 m). The main destination countries for broiler exports were Mozambique at t, Namibia at t, Lesotho at t, Zambia at t, Zimbabwe at t, Botswana at t and Swaziland at t of the total tonnes exported. In 1H 2017, broiler exports accounted for 93.7 % of total poultry exports ( t), and 92.0 % of the FOB value (R590.4 million). In 2016, 25.2 % of broiler exports were frozen bone-in portions, 24.4 % frozen mechanically deboned meat, 16.9 % whole frozen chicken and 16.7 % fresh chicken cuts and offal. The remainder comprised a mix of boneless chicken portions, frozen chicken portions, whole fresh chickens, frozen chicken carcasses and offal, value-added chicken and chicken pastes. In 1H 2017, 7.7 % of broiler exports were frozen bone-in portions, 5.2 % frozen boneless portions; 20.7 % frozen mechanically deboned meat, 14.5 % whole frozen chicken and 21.2 % fresh chicken cuts and offal and 7.5 % frozen offals (livers, feet and others). 27 P a g e

28 Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Q2, Q3, Q4, Q1, Key market signals in the Broiler Industry 2Q PRICE TRENDS 3.1 PRODUCER PRICES R per kg Quarterly weighted average producer price for total broiler sales realisation Figure 11: Quarterly weighted average producer price for total sales realisation R per kg Annual producer price for total broiler sales realisation YTD Figure 12: Average annual weighted producer price for total sales realisation (2017 April) 28 P a g e

29 Quarterly and annual producer prices for total realisation of broiler meat, including 2017 YTD to April are given in Figures 11 and 12 above, respectively (May and June not available). Producer prices for 2Q 2017 are not available from SAPA. The average total realisation price for the quarter (1Q 2017) was R20.86 per kg, an increase of 6.4 % in comparison with the previous quarter (R19.61) and an increase of 15.1 % in comparison with the first quarter in The following figure (Figure 13) depicts the quarterly (1Q 2017) product mix in terms of volume of broiler meat produced. Please note, 2Q 2017 product mix data not available from SAPA. Broiler product mix according to volume, 1Q 2017 Whole fresh 2.9% Whole frozen 3.5% Fresh sundries 0.3% Frozen sundries 15.4% Fresh chicken chunks and soup pack 0.1% Frozen chicken chunks and soup pack 6.5% Fresh cuts 6.9% IQF 57.3% Frozen cuts 4.9% Frozen value-added 2.2% Figure 13: Quarterly broiler meat product mix: 1Q Producer prices in real terms The weighted average producer price for broilers (less all discounts, rebates, advertising spent, secondary distribution, VAT, etc.) is adjusted for CPI (meat) in Figure 14 to estimate the annual producer price in real terms. The CPI adjustment takes 2008 as the base year (index = 100; base price = R13.55). In real terms, with 2008 chosen as the base year and producer inflation (CPI meat) corrected for, the average broiler producer price decreased by 4.6 % in 2016 compared to 2015 prices. In real terms, the broiler price for 2016 was R 11.52; and the broiler price from 2010 to 2016 has remained below the 2008 average producer price of R13.55 per 29 P a g e

30 kg. This situation persists to 2017 YTD (April). Please note, data after April 2017 are not available from SAPA. In real terms, the broiler producer price for the 1Q 2017 (R11.88) was 1.6 % less than the 2015 average (R12.07) but 3.1 % higher than the 2016 average (R11.52). In April 2016, the broiler price in real terms was R11.27, compared to R12.08 in April 2017; a year-on-year increase of 7.2 %. R per kg Producer price for broilers: nominal vs real terms (base 2008 = 100) Producer price for broilers (weighted, average NSV) Producer price for broilers in real terms (CPI (meat) adjusted) 2008 average producer price YTD Figure 14: Broiler producer price in nominal and real terms: annual averages (2017 YTD April). The monthly figures for broiler producer prices (nominal and real) are given in Figure 15; to April May and June figures not available. The broiler producer price index presented in Figure 16 is compared to the SA food and non-alcoholic beverages (NAB) price index. The indices are compared using two base years on the same graph; base 2008 = 100 and base 2012= P a g e

31 Indexes: 2008 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Key market signals in the Broiler Industry 2Q 2017 R per kg The broiler producer price (NSV): nominal terms vs real terms (Base: 2008 = 100; R13.55 per kg) Producer price for broilers (weighted average, NSV) Producer price for broilers in real terms (CPI (meat) adjusted) 2008 base price (R13.55; base = 100) Figure 15: Broiler producer price in nominal and real terms: monthly values (to April 2017) 240 Broiler price inflation vs food price inflation Base 2012: broiler price Base 2012: food Indexes: Base 2008: food Base 2008: broiler price Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan Figure 16: Broiler producer price index vs food inflation index (bases 2008 and 2012). 31 P a g e

32 Using 2008 as the base year, the broiler price index has remained below the food inflation index from 2009 to April 2017 (Figure 16). From early 2013, the difference between the two indices gradually decreased. By December 2014, there were only 8 points between the two indices. What this means is that broiler producer price inflation was running above the food and NAB inflation rate in this period (thus closing the gap between the two indices). So, when we use 2012 as the base year, it can be seen that the broiler producer price index is greater than the food price index for two and a half years from February 2013 to May 2015; not accelerating away from the general food index, but at least above and parallel with it. From May 2015 to July 2016 (with the exception of a short-lived recovery in the last quarter of 2015), the broiler producer price index began to decline noticeably relative to the food price index. Using 2008 as the base year, the broiler price index can be seen dropping down, away from the food price index. With 2012 as the base year, the food index continues to steadily climb, while the broiler price index drops below it for the first time in several years. This is a measure of the strain producers found themselves under in terms of producer price, at a time when other food items were increasing in price and the price of raw materials was escalating. From July 2016, the broiler price index has increased at a faster rate than the food price index, as prices have had to rise to compensate for animal feed costs. If 2008 is the base year, the broiler price index still lies below the food price index at the end of 2016, but is approaching it sharply. With 2012 as the base year, the broiler price index leapt back up above the food price index in November 2016 and has remained there since. In 2015, the quarterly difference between the two indices (producer price and food and NAB inflation; base = 2008) was always less than 18 points. In the 1Q, 2Q, 3Q and 4Q 2016 and 1Q 2017, the difference was recorded at 26.6, 29.4, 33.5, 26.7 and 22.4 points, respectively. In April 2017, the difference was 17.1 index points a smaller gap is in the producers favour. May and June 2017 figures are not available from producers Broiler prices in comparison with pork, beef and eggs Broiler meat and eggs remain the most affordable of all protein sources described in the graph below (Figure 17). Beef prices, for classes A2/A3, are considerably higher than pork and broiler prices. The average beef producer price at the abattoir (carcass price, excluding the fifth quarter) for 2015 was R34.17 per kg and for 2016 was R P a g e

33 Producer price (R/kg) Producer prices for protein sources: annual averages YTD Beef (Abattoir class A2/A3) Beef (Abattoir class C2/3) Pork (all classes) Note: broiler price is 2017 YTD April. Prices not availble from producers for May and June Broiler producer price (NSV) Egg producer price (all sizes) Figure 17: Annual producer prices of protein sources: 2015, 2016 and 2017 YTD (April). In June 2017, beef classes A2/A3 fetched R46.18 per kg; a year-on-year increase of 20.8 % (cf June 2016; Figure 18). The average producer price of class C2/C3 beef was R27.27 per kg in 2015 and R31.11 in In June 2017, class C2/C3 beef fetched R39.69 per kg (Figure 18); a year-on-year increase of 34.7 % (Source: Stats SA). The average pork price (all classes) was R22.83 per kg in 2015 and R24.36 in During June 2017, the pork producer price was R26.31 per kg. The June producer price has increased by 10.5 % in comparison with the same month in the previous year. The average egg producer price for 2015 was R16.65 per kg and for 2016 was R Please note that the mean egg weight used to calculate egg prices per kilogramme has been increased in SAPA models from 55 g to 58.2 g for 2014, 58.3 g for 2015 and 58.5 g for 2016, so average egg producer prices for 2014 have changed since the 3Q 2015 report. In June 2017, the egg producer price was R20.79 per kg (R14.58/dozen); an increase of 11.5 % on a yearly basis. The average producer price for broilers (total realisation) for 2015 was R18.43 per kg and for 2016 was R18.92 per kg (+ 2.7 %). The broiler producer price for June is not available because too few producers submitted data to SAPA. The producer price in April was R P a g e

34 3.1.3 In comparison with pork, beef and egg during the 2Q 2017: In the 2 nd quarter of 2017, the beef price for classes A2/A3 was considerably higher than pork and broiler prices. The average beef producer price at the abattoir (carcass price excluding the fifth quarter) for 2Q 2017 was R46.36 per kg; a 9.4 % increase on a quarterly basis and a 20.9 % increase on a year-on-year basis. The average producer price of class C2/C3 beef was R38.50 per kg for 2Q 2017; a 7.4 % increase on a quarterly basis and a 31.9 % increase on a year-on-year basis (source: SA Stats; SAPA). The average price of pork (all classes) was R26.40 per kg in the 2 nd quarter of 2017; a quarterly decrease of 2.8 %, but a year-on-year increase of 9.4 %. The average egg producer price for 2Q 2017 was R20.31 per kg; a quarterly increase of 7.4 %, and an increase of 12.3 % on a year-on-year basis (SAPA; average all sizes). The average producer price for broilers (total realisation) for 1Q 2017 was R20.86 per kg. The 2Q 2017 broiler producer price is not available because an insufficient number of producers submitted data to SAPA in May and June. Price (R/kg) Beef, pork, poultry and egg producer prices Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Beef (Abattoir class A2/A3) Beef (Abattoir Class C2/C3) Pork (average all classes) Egg (average all sizes) Source: AMT,SAPA Broiler producer price (NSV) Figure 18: Monthly producer prices of protein sources (broilers to April 2017 only). 34 P a g e

35 3.1.4 SA prices in comparison with the USA The price of US leg quarters in c/pound is contrasted with the US price for deboned and skinless breast meat cuts in Figure 19. A severe drop in the price of US leg quarters was experienced through 2015, because of export bans imposed in reaction to AI outbreaks in the US. Some recovery in leg quarter prices is evident through 2016 and, especially early 2017, as export volumes improve. June 2017 prices are up 21.8 % over those realised two years ago in June 2015 and 7.5 % up on June 2016 leg quarter prices. However, the June 2017 price is still 29 % below the price realised in June USDA prices of chicken meat Price (c/lb) Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Leg quarters Breasts, deboned and skinless Figure 19: USA leg quarter and deboned skinless breast prices (cents per pound; source USDA). The USA broiler prices for region North East are presented in SA rand per kg in the graph below (Figure 20) and compared to the South African price for total realisation (IQF) and whole frozen birds. South African prices are given to April 2017, as May and June data were not available from producers. The disparity between US prices for skinless, boneless breast meat and leg quarters, in the same market, is clearly evident. 35 P a g e

36 R per kg US broiler price (in SA rand/kg) compared to SA producer price for IQF Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 US: skinless/boneless breast US: bone-in breast US: whole broilers US: leg quarters SA: IQF mixed portions SA: whole frozen bird Figure 20: USA broiler prices in comparison with the local IQF and whole bird producer price (NSV); to April 2017 for RSA data 3.2 RETAIL PRICES The source of the broiler producer prices for the different portions presented in this document is SAPA (see definition at the end of this document). Retail poultry prices are collected and disseminated by Statistics SA. From January 2013 onwards, Statistics South Africa removed whole frozen chicken from their reporting basket. The retail price of fresh whole chicken, fresh chicken portions and frozen chicken portions were by Stats SA tracked until December In January 2016, Stats SA changed their methodology for reporting chicken prices. This change, which was not shared with users, resulted in what appeared to be substantial, unrealistic changes to the retail price of frozen chicken portions in relation to 2015 data. The figures for January to March 2016 were R38.85, R40.21 and R45.06/kg, compared to R28.50, R28.22 and R28.55 under the old methodology - and not grounded in reality. The issue was raised with Stats SA and 2016 figures under the old methodology were secured and used in all 2016 SAPA reports. Unfortunately, the higher figures from the new methodology were released to the public, National Agricultural Marketing Council (NAMC), etc. in early 2016 and were subsequently included in further calculations (e.g. % inflation of meat products by NAMC) and disseminated in the media. The huge increases gave the impression (to a readership which might also not make the distinction 36 P a g e

37 between retail prices and producer revenues) that chicken prices were soaring. Retail prices clearly did not increase by almost 50 % from one month to the next and producer prices were, in fact, dropping at the time. Now, at the beginning of 2017, Stats SA have continued with their changes to the way in which they present frozen chicken prices. Historically, Stats SA have arrived at a per kilogramme price for frozen chicken portions by taking all the prices available to them on all packaging sizes (2 kg bags, 1.5 kg bags, individually-priced packs, etc.) and then averaging these prices. From January, Stats SA have split their reporting on frozen chicken portions into 8 codes: six for IQF portions (bag sizes: 1 kg, 1.5 kg, 1.8 kg, 2 kg, 4 kg, 5 kg); one for the remainder of the frozen portions (excluding IQF; for portions where the R/kg price is given on the packet); and one for frozen portions where the real price per kilogramme has to be calculated from pack weight and price. Removing the popular and economical IQF bags from the last two codes has obviously had the effect of pushing up the average price of these remainder categories. NAMC are currently reporting on 2 kg IQF packs, along with an additional table in which the 1 kg IQF packs and the real price/kg packs are reported. Until January 2018, we will be unable to compute and report year-on-year increases in frozen chicken portions because Stats SA have not overlapped their data collection periods. R per kg Retail price of broiler meat YTD Not in Stats SA basket until Not in Stats SA basket until Whole chicken: fresh Chicken portions: fresh Chicken portions: frozen 2 kg IQF portions Frozen portions, excluding IQF Figure 21: Retail price of chicken meat (R/kg): annual averages (Source: Stats SA) From January 2017, for the purposes of this report, frozen chicken prices will be given in terms of 2 kg IQF bags, and an average of the two remainder categories that is, frozen portions excluding all IQF bags. 37 P a g e

38 The annual retail price of broiler chicken meat from 2012 to 2016 (source: Stats SA) is shown in Figure 21. Note that the historical calculation of the price of frozen chicken portions falls away at the end of 2016 and is replaced with two new measures: 2 kg IQF bags and frozen chicken portions (excluding IQF; average of both Stats SA calculations) Retail Price of Whole Fresh Chickens Whole chickens (fresh): The average retail price for 2015 was R39.56 per kg and for 2016 was R41.83 per kg (+ 5.7 %). In 1H 2017, the retail price was R44.05 per kg. The retail price of whole frozen chickens in 2Q 2017 was R43.93 (compared to R44.16 in 1Q 2017; %). A lack of monthly data from broiler producers has affected estimates of the producer price of whole fresh chicken through 2015, 2016 and 2017 YTD, making calculation of the retail mark-up unreliable Fresh Chicken Portions Chicken portions (fresh): The average retail price for 2016 was R53.71 per kg. The average producer price through 2016 was R29.99 per kg. The mark-up from producer to retailer through 2016 was %. The retail prices of fresh chicken portions from June 2012 to June 2017 are presented in Figure 22; along with producer prices to April Producer prices for May and June 2017 are not available. R per kg Retail and producer price of fresh chicken portions Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Retail: chicken portions fresh price Producer: chicken portions fresh price (braaipack) Figure 22: Retail and producer price of fresh chicken portions (source: Statistics SA). 38 P a g e

39 The average retail price for 2Q 2017 was R56.38 (1Q 2017: R55.91 per kg); an increase of 0.85 % on a quarterly basis. The average producer price for the 2Q 2017 is not available from producers, so it is not possible to calculate the mark-up for the second quarter. The average mark-up in the 1Q 2017 was 76 % Frozen chicken portions The retail and producer price of frozen chicken portions on a monthly basis from June 2012 are shown below (Figure 23). Chicken portions (frozen): The average retail price for 2016, under the old methodology, was R28.75 per kg (compared to R28.98 in 2015). The producer price was R20.33 per kg. The mark-up from producer to retailer was 41.4 %. The average producer price for Individually Quick Frozen (IQF) mixed portions was R17.00 per kg in 2016 (compared to R16.97 in 2015) and the mark-up was 69.1 %. In the product mix for 2016, frozen chicken portions made up 5.5 % and IQF 60.1 %. R per kg Retail and producer price of frozen chicken portions Retail: frozen chicken portions Producer: frozen chicken portions Retail: 2 kg IQF bags Producer: IQF portions Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Figure 23: Retail and producer price of frozen chicken portions to Dec 2016 and 2 kg IQF bags from January 2017 (R/kg; source Statistics SA) Going into 2017, with the new Stats SA methodology: The average retail price for 2 kg IQF bags in 2Q 2017 was R31.12/kg; an increase of just 0.06 % on 1Q 2017 prices. A year-on-year comparison with 2Q 2016 is not available from Stats SA. The producer price for mixed IQF portions in 2Q 2017 is not available from producers so the mark-up 39 P a g e

40 from producer to retailer cannot be calculated. The mark-up from producer to retailer was 48 % in 1Q The average retail price for frozen chicken portions, excluding IQF bags, in 2Q 2017 was R44.56/kg; an increase of 5.0 % on 1Q 2017 prices. As with the IQF portions, a year-on-year comparison with 2Q 2016 is not available from Stats SA. The producer price for frozen chicken portions is not available from producers for 2Q 2017 so the mark-up from producer to retailer cannot be calculated. 3.3 FEED PRICES Broiler feed price indicator The average feed price for 1Q 2017 was R5 560 per tonne, a decrease of 2.3 % over the average price in the 4Q 2016 (R5 688). The average broiler feed price in the first quarter of 2017 was 1.0 % lower than in the 1Q 2016 (R5 505). In April 2017, the feed price indicator had dropped to R5 248/tonne. May and June feed pricing is not available from producers, so 2Q 2017 pricing cannot be presented. The graph below depicts the monthly broiler feed indicator from January 2012 to April 2017 (Figure 24). R per tonne Broiler feed price indicator 5,800 R 5,602 R 5,482 5,300 4,800 4,300 R 4,356 R 4,581 R 4,819 R 4,934 3,800 3,300 2,800 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Broiler feed price indicator Average annual feed price indicator Figure 24: Broiler feed price indicator, monthly from January 2012 to April 2017 (source: SAPA) 40 P a g e

41 The average feed price for 2016 was R5 602 per tonne. This is 13.5 % more than the average feed price for 2014 (R4 934). The average feed price from January to June 2016 was R5 517 and for July to December 2016, R5 686, compared to R in the 1H The higher prices experienced in the second half of 2015 and through 2016 are a result of the severe drought experienced through the 2015/2016 and first half of 2016/2017 maize seasons. The average feed price indicator for the first four months of 2017 was R Data for 1H 2017 are not available because of missing May and June data Broiler breeder feed price indicator The average breeder feed price indicator for 1Q 2017 was R5 148 per tonne, a decrease of 1.9 % in comparison with Q (R5 244) and a decrease of 1.1 % in comparison with the same quarter in the previous year (R5 203). The feed price indicator for April 2017 was R May and June feed pricing is not available from producers, so 2Q 2017 pricing cannot be presented.. The graph below depicts the monthly broiler breeder feed price indicator from January 2012 onwards, to April 2017 (Figure 25). R per tonne Broiler breeder feed price indicator 6,000 5,500 5,000 R 5,255 R 5,127 4,500 4,000 3,500 R 3,661 R 4,014 R 4,169 R 4,286 3,000 2,500 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Broiler breeder feed price indicator Average annual broiler breeder feed price indicator Figure 25: Broiler breeder feed price indicator, monthly from January 2012 to April 2017 (source: SAPA) 41 P a g e

42 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Key market signals in the Broiler Industry 2Q 2017 The average broiler breeder feed price for 2016 was R5 255 per tonne. This was an increase of 22.6 % in comparison with 2015 (R 4 286). The average price for 1H 2016 was R5 213 and the average price for 2H 2016 was R The average feed price indicator for 2017 YTD April is R5 127 per tonne. Data for 1H 2017 are not available because of missing May and June data Feed price index vs broiler price Year-on-year percentage changes in the feed price index and the broiler producer price are presented in Figure 26. For almost two years, from the 2Q 2009 until January 2011, broiler producers were forced to accept monthly broiler prices lower than achieved in the same month of the previous year, although lower feed prices in this period would have supported. Then, from January 2011 to July 2013, feed prices escalated year-on-year, with particularly high increases during most of The graph shows clearly that percentage year-on-year increases in broiler producer prices during this period were not as high as the year-on-year feed price increases, which impacted negatively on profit levels in the industry. Only from January 2013 were producers able to maintain some level of year-onyear increase in the broiler producer price, even when feed prices were rising (e.g. March to August 2014). Percentage 45.0 Percentage change in broiler feed price and producer price on a yearly basis 35.0 % Change in broiler producer price % Change in broiler feed price Figure 26: Year-on-year percentage change in broiler feed price and producer price (source: SAPA) to April P a g e