Don t let the opportunity fly away. Satisfy South Africa s insatiable appetite for chicken through innovation 12 SUPERMARKET & RETAILER, MARCH 2016

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1 POULTRY Chicken is the most popular type of meat consumed in South Africa and such, any changes in its supply or price greatly affect the majority of South Africans, particularly those in the lower income bracket who rely on yenkukhu for protein in their diet. In 2016, the poultry category certainly poses a challenge for retailers but it also provides an opportunity to draw feet and differentiate your store from the rest. State of the South African poultry industry Cheap imports, soaring feed costs, rising electricity tariffs and impending regulations to cap the levels of brining all affect the price and local producers and retailers find themselves between a rock and a hard place absorbing increasing costs to keep prices low for consumers and trying to survive in a tough trading environment. In South Africa, chicken is the most popular type of meat consumed and this is evidenced by the high levels of domestic broiler meat production, an area that represents the largest segment of South African agriculture. In total, South Africans eat about 1.8m tons of broiler meat annually. On average, SA s per capita consumption of broiler meat is 36kg, compared to 17kg of beef and just 3kg of mutton. Poultry: Don t let the opportunity fly away Satisfy South Africa s insatiable appetite for chicken through innovation By Laura Dubber and added value According to the National Agricultural Marketing Council, chicken meat prices have increased by 13% since During the same period, the price of beef mince has increased by just 2%. Rising import tariffs of chicken meat, coupled with antidumping duties are to blame for escalated local prices. Not to mention the rising cost of doing business. Theo Delport, Managing Director of the Astral Foods Poultry Division, says that the price of maize is up 60% from a year ago, which obviously impacts the price of chicken. South African chicken producers make very small margins so to try and absorb costs is very difficult. Consumers are also having a tough time so passing on the costs is difficult too, but if we can t pass on the costs, people in this industry will battle to survive, he says. Chicken is the most popular type of meat in SA, with South Africans eating about 1.8m tons of broiler meat annually. 12 The cost of brining Going forward, another contributing factor to the rising cost of chicken will be the new brining regulations set to be implemented in the industry. Amendments to the Poultry

2 Meat Regulations regarding Control over the Sale will have a major impact on the producers of both fresh and frozen poultry meat. The amendments, which were published in the Government Gazette in October 2015, include the following: The total brine injection allowed for whole carcasses is limited to maximum 10% (versus the maximum of 8% that was previously prescribed). Total brine injection allowed for individual portions is limited to maximum 15% (no limit was previously prescribed). The product name shall include a true description of the added formulated solution (e.g. chicken with brine, sweet n sour marinated chicken drumsticks etc.) Producers must regularly perform tests to ensure compliance with the new water uptake and injection limits, and must keep records thereof for at least one year. The amendments are still under discussion, with the Minister of Agriculture, Forestry and Fisheries, Senzeni Zokwana, meeting with industry representatives, including the South African Poultry Association (SAPA), to finalise the caps. If the regulations come into effect, chicken prices will have to go up. Individually quick frozen (IQF) chicken is very competitively priced already. Reducing the injection rate means that the cost price will have to increase, which will obviously have a negative effect on the consumer, adds Delport. Is SA a dumping ground for American chicken? Another very big concern felt by producers and retailers alike is the impact of the African Growth and Opportunity Act (AGOA). For many South African chicken farmers and poultry producers, the American poultry arriving in South Africa is a very real threat to business. Rather than be suspended from the AGOA programme altogether, which would negatively affect other industries, including wine and citrus which enjoy extensive access to US markets, Government had no choice but to open its market to tons of US poultry imports. According to the agreement, US exporters will also receive a rebate on any anti-dumping duties. Local producers are unable to compete with imported chicken based on price. A stronger Rand exchange rate makes imports cheaper, and places downward pressure on chicken prices. A weaker Rand, on the other hand, protects local industry from overseas competition. However, even given the current Rand weakness, the landed price of imported chicken is far lower than the price of domestically produced chicken. South Africa can supply enough chicken to meet the growing demand in the country but how are we going to be able to expand with the number of imports coming in? asks Delport. The South African poultry industry is a fully integrated business that creates employment throughout the value chain. Importing does not create employment! These imports are likely going to curb the growth of the South African poultry industry. According to Geoffrey Anderson, CEO of Mikon Farming, a local medium-sized poultry company, American farmers will benefit hugely from the deal because the American poultry brought to South Africa are by-products to dump at a profit. They have already made their premiums from breast meat and wings. They have a huge market in America for breast meat and wings. They use it for burgers, chicken nuggets, schnitzels and buffalo wings, Anderson told the SABC. The leg quarter (thigh and drumstick) are considered to be by-products by the US market. They don t have a market for it so they dump it here. Basically they are dumping, that s what it is, Anderson explained. We are very concerned, adds Delport, the quarters that they can t sell in the States will be sold here in South Africa, and it s going to put local chicken producers under pressure. Although it is still early days, it is interesting to see how consumers are reacting on social media to the news of American chicken arriving on our shores. Delport s office has already received a number of calls from concerned consumers wanting to find out if Astral Foods chicken, including its Festive, Goldi, Mountain Valley and Country Fair brands, is proudly South African a fact that Delport confirms each time. I cannot believe that any South African producer would import chicken. The importers are resellers, not producers, he says. It is therefore highly unlikely that American chicken would ever be mixed with chicken produced in South Africa. Individually quick frozen (IQF) chicken is very competitively priced already. Reducing the brine injection rate means that the cost price will have to increase, making an affordable protein source a lot less affordable for the average consumer. In support of proudly South African chicken In a press release released earlier this month, Proudly South African (Proudly SA) declared its support for the call by 13

3 POULTRY Minister of Trade and Industry, Dr Rob Davies, for proper labelling of goods sold in South Africa, particularly with regard to chicken. Consumers need to be afforded the right to make informed choices. While we understand the intricacies involved in the negotiations around AGOA, we believe it is now up to South African consumers to make their own informed choices, says Proudly SA s CEO, Adv. Leslie Sedibe. The organisation is also calling on the poultry industry and all parties involved in the value chain to ensure that goods are properly labelled with the Country of Origin Label. By law, all products sold in South Africa must have a Country of Origin Label (stating where the product is from/ made/produced or manufactured). Under the Consumer Protection Act, it is illegal for an importer or any person to place a label on an item stating that it is made or CASE STUDY Butcher s Buy Cuts a firm favourite of the Boxer shopper! The more we serve our customers and do new and innovative things, the more value we re unlocking, says Andrew Mills, Director of Marketing at Boxer Superstores. Beef prices have increased up to 30% over the past month and a half, so affordable protein has definitely become a focus for our core shoppers, says Mills Chicken is one of our best-selling products and it is often available at a price discounted to below cost as a way of attracting shoppers to our stores, he says. IQF chicken in particular is a price fighter. As a retailer one has to make a discount decision to position ourselves as the low price champion for the communities All parties involved in the poultry value chain must ensure that goods are properly labelled with the Country of Origin Label to enable consumers to make informed decisions. produced in South Africa, for example, if in fact it comes from another country. Retailers are also prohibited from selling goods if they know or suspect that a description on an item is likely to mislead consumers about the true place of origin. Tampering with labels is also illegal. Another issue raised concerns the health risk claims around salmonella, cancercausing arsenic, hormone and anti-biotic abuse. We sincerely hope that whoever wishes to import these goods has taken Boxer Superstores Taking a customer-centric approach to its affordable protein offering By listening to customers changing needs, understanding their daily struggle to survive, and constantly innovating, Boxer Superstores is succeeding in keeping its share of the middle through to lower-end consumer wallet. we serve, he says. Boxer s discerning customers do not have the luxury of wasting food so each purchase is carefully considered. They examine each piece of IQF chicken and count them through the plastic see-through window of the bag as every single piece is allocated to a person at home, he explains. He also notes the rise in the popularity of fresh chicken amongst customers, as many more homes now have fridges, and crumbed chicken, which remains a firm favourite on the in-store deli menu. Understanding their customers need for affordable protein, management at Boxer Superstores took the decision to build and open a factory in Salt Rock, on the KwaZulu-Natal North Coast, to manufacture a range of sausages, bangers and Russians to offer more to loyal shoppers in-store. We had to ask ourselves how we could make the biggest impact on the majority of our stores out there, and give customers a more cost effective protein solution, says Mills. It is now one of the largest sausageproducing factories in South Africa, supplying all the Boxer stores with more than enough stock. The product, under Boxer s very own Butcher s Buy confined label, has been very well received by customers. It is so encouraging to see customers filling their baskets with this confined label, which is only available in Boxer stores. In fact, we can t keep up with the demand from stokvels to buying clubs to regular customers, he says. Boxer is even planning to expand its range of products to offer even more affordable variety in-store when it comes to the processed meat options for customers. At the end of the day, we have to make sure that there are protein meal options for our customers to feed themselves and their families which are affordable for their wallet and purse. The cost of living has increased across the board, but food remains a basic right, so we have to make sure that we are filling that gap on their plates, he concludes. 14

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5 POULTRY Choose South African chickens to protect the basis of the poultry industry and the jobs in that sector Proudly SA the necessary steps to ensure that our people s health is not placed at risk, particularly the poor who may end up consuming these products because they are cheap, says Sedibe. We call on consumers to choose South African chickens to protect the basis of the poultry industry and the jobs in that sector, instead of poultry and meat products from other countries which may or may not pose a health risk to our people in the longterm, he concludes. For the love of chicken 5 ways to promote poultry sales in your store 1. Introduce a delicious range of chicken options in your home meal replace ment (HMR) and deli counters to tempt every taste bud, including crumbed chicken, marinated chicken breasts, spicy buffalo wings and whole roast chickens. 2. Inspire customers by providing recipe cards alongside your chicken offering in the butchery. This is also the perfect cross-merchandising opportunity for marinades, sauces and spices. 3. If you re willing to take a strong stand on the AGOA issue, endorse a proudly South African chicken campaign and give preferential treatment to local chicken suppliers. 4. Increase your range of fresh, frozen and processed products to offer customers the biggest range of chicken and cater to their different tastes and budgets. 5. If you have decided to allow American poultry on your shelves, be sure that all labelling and food safety regulations have been adhered to in order for your customers to make a safe and informed purchasing decision. Make sure your home meal replacement (HMR) and deli counters offer enough variety to keep your customers coming back for more! Chicken news from around the world Shift to cheaper protein expected to boost poultry profits in Argentina Argentina s 2016 poultry production is expected to reach 2.2 million tons this year according to the latest report from the US Department of Agriculture s Foreign Agricultural Service (USDA-FAS), an upward revision to estimates following higher domestic demand and minor export growth. As beef prices continue to rise, consumers shift towards more inexpensive animal protein sources to maintain a stable level of animal protein consumption, and this is expected to make broiler production more profitable despite increased costs. Hong Kong seizes illegal poultry imports A spokesman for the Agriculture, Fisheries and Conservation Department (AFCD) has reminded members of the public not to bring live poultry and birds into Hong Kong without a valid health certificate or they might face prosecution. 24 poultry and birds without valid health certificates, including 20 ducklings, two scarlet minivets, a Chinese grosbeak and a house crow, were found in a private car bound for Hong Kong at Shenzhen Bay Control Point during an inspection by the Customs officers on 9 March. Bird Flu continues to spread in Nigeria Two more outbreaks of highly pathogenic avian influenza were report in Nigeria on 8 March. The outbreaks, in Zamfara and Bauchi provinces, affected pullets of unknown age on two farms. The pullets were affected by the H5N1 form of the virus. Over birds were destroyed and 491 died in the outbreaks. Poor farm biosecurity was again implicated in the spread of the disease. Brazilian poultry health lab accepted as global reference centre Brazil s application for its National Agricultural Laboratory in São Paulo to be an international reference centre for avian flu and Newcastle disease has been accepted by the World Organisation for Animal Health (OIE). A successful application would mean that all the diagnoses made by the laboratory will have global validity, which would allow Brazil to dispense with sending samples to other countries. The request, sent by Brazil s Agriculture Ministry (MAPA), will be voted on in May this year by the World Assembly of OIE. Acknowledgement: The Poultry Site ( Crumbed chicken is a firm favourite for South Africans so make sure there s more than enough to cater for the lunchtime trade. 16

6 Johannesburg Cape Town Durban Great South African Chicken Every Day!