2020, the irony is not lost on us! A year in which retrospective vision was to be perfected, has instead left us scrabbling to make sense of the present and increasingly uncertain about the “new normal” future.
In the first quarter of the year, countries went into lockdown, disrupting domestic production, except in the case of “essential goods and services”. Borders were closed to trade in unprecedented ways and restrictions introduced on movement of staple goods. And South Africa was no exception.
As a country, concerns around the covid-19 pandemic extended beyond a public health crisis to include issues of food security. Possible disruptions along key domestic and global agri-food supply chains posed a threat to households’ ability to access food. And for the poultry value chain, this was of particular concern.
Poultry is an affordable source of animal protein for the majority of South African households. According to data from the South African Poultry Association just over two million tonnes of chicken was consumed in 2018. In March, beyond the lockdown restrictions on trade, the industry had some pressure relief as the tariff rate increment went into effect. Poultry valorem tariff rates for bone-in chicken portions increased from 37% to 62% while frozen boneless portions increased from 12% to 42%.
As expected, import volumes for broiler fell from 38 955 tons in March to 31 783 tons in June; however, domestic demand was also negatively affected by covid-19.
What was the impact of all of this on domestic prices?
Economics 101 tells us: other things remaining the same, with tariff rate increases, producer prices should rise as the domestic market is protected from the importation of cheaper poultry products from global competitors. This increase would then be transmitted along the value-chain, with consumers paying higher prices for poultry at the retail level. When one looks at the data however, this is not what we observe.
Producer prices in real terms for both fresh and frozen poultry per/kg declined from R27 per/kg in March to R24 per/kg in June based on agricultural market trends (AMT) data. Declining domestic demand from commercial buyers under lockdown, such as restaurants and the hospitality industry, could be one reason why the poultry tariff rate increase failed to result in rising producer prices. Did this fall in price at the farm gate transmit to the consumer? Unfortunately, not.
In real terms, retail prices between March and June rose from R66 per/kg to R83 per/kg for fresh poultry and from R49 per/kg to R53 per/kg for frozen products during the same time period. The observed spike in the consumer prices at the retail level indicates a break-away from 2019’s average monthly margins of R35 per/kg and R23 per/kg for fresh and frozen poultry respectively. Between March and June 2020 monthly margins averaged R49/kg for fresh and R31/kg for frozen poultry.
Given the overall economic impact of the covid-19 pandemic and the increasing pressure on households’ disposable income, identifying and mitigating possible factors influencing the widening margins observed in the poultry industry will be crucial in ensuring access to affordable protein for the vast majority of South Africans.