Regional dimensions of competition in poultry

Tatenda Zengeni

The growth of the poultry industry in African countries and its potential for labour absorption has attracted significant investments to the sector.1 The strategic importance of the sector has also resulted in the proliferation of policies to support local producers in order to gain from the potential for localised growth. Consumption of poultry meat as a source of protein is expected to rise by 2.8% per year between 2013 and 2022 whereas the consumption of pork, beef and other meat products is expected to grow at 2.2% and 1.9% per year, respectively, in developing countries.2 The ability of countries in the region to benefit through these developments will not only rely on support offered to local producers, but the competitive interactions of local firms with the large, vertically integrated incumbents operating at multiple levels of the value chain. Given the tight oligopolistic structure of these markets which are dominated by large firms operating throughout the region, it is critical to take a regional view when analysing competitive dynamics in poultry. This article reviews the main findings of recent research on competition and the role of government policy in the poultry sectors of Botswana, Namibia, South Africa, Zambia and Zimbabwe.

Poultry prices

A comparison of the producer prices in 2012 for 1.8kg of chicken in the countries under review shows that South Africa has the lowest and Zambia the highest prices at $2.64 and $3.90, respectively (Figure 1). 

One of the factors explaining the difference in prices is the cost of feed. The cost of feed, as the most important input in production, in the total producer price of chicken ranges from $1.61 to $2.13 in the five countries, or approximately 60% to 70% of the producer price. South Africa which has the lowest producer price of chicken of $2.64 also has the lowest feed cost at $1.61. Zimbabwe’s feed cost is the highest in the group of countries at $2.13 partly because the country has not been able to produce sufficient maize and has had to rely on importing maize from Zambia.4 Zambia has a feed cost of $1.74 per broiler. Of particular interest is the fact that Zambia, with feed costs that are close to the lower end of the range in the region, has the highest prices for chicken. This is despite the fact that Zimbabwe, Botswana and Namibia have far smaller industries in terms of scale and have to import inputs. Botswana and Namibia have feed costs of $1.85 and $2.00, respectively, and producer prices of $3.39 and Namibia’s $2.84.5

This suggests that there may be other factors driving prices in Zambia. Specifically, some firms noted that it is often cheaper to import feed from sources in South America than it is to source it from Zambia, despite their relative advantage in producing feed and particularly soya. This may also have to do with the quality of feed from Zambia. Other factors to consider are the high levels of concentration at the breeding level for day old chicks which are the second key input into poultry production. The price for day old chicks contributes on average 20% to 30% of the producer price for chicken in all countries.6 South Africa, which has relatively more players at that level, has the lowest price of day old chicks at $0.37 while Zimbabwe and Zambia, with fewer players at this level of the value chain, have more than double the South African price at $0.75 and $0.85, respectively. The effects of concentration are exacerbated by high barriers to entry, including significant capital requirements and scale economies.

Internationalisation of poultry firms in the region

The relatively small size of country markets also means that actually achieving scale domestically is especially difficult, making regional markets more attractive. In this context, a small number of firms operate across most of the countries, with the main groupings being as follows:

  • Astral/Tiger in South Africa, Botswana and Zambia
  • Pioneer/Tydstroom/Bokomo/Brink in South Africa, Botswana, Zambia
  • Rainbow/Zamchick in South Africa and Zambia
  • Country Bird/Dada/Ross Africa in South Africa, Botswana and Zambia
  • Irvines in Botswana and Zimbabwe.

The poultry industry in the five countries has increasingly become controlled by South African producers. Astral Food Ltd, Rainbow Chicken, Country Bird, and Pioneer Foods are all vertically integrated firms operating in South Africa.7 Other firms, such as Irvines from Zimbabwe have limited cross-border operations or links. Poultry industries in Botswana and Namibia are relatively young with low levels of competition at the various levels of the value chain. Namibia Poultry Industries is the sole producer in Namibia, relying on inputs from South Africa8 while in Botswana there is greater rivalry in broiler breeding between firms such as Tswana Pride, Dikoko tsa Botswana, Richmark, Moleps and Bobbsie/Godwill.9

The fact that many of the large firms have operations which are widely spread across the region suggests that although the structure of the regional market is oligopolistic, there is potential in the sector for greater distribution of value chains and production. Opportunities going forward could include sourcing greater volumes of feed from Zambia and other sources within the regional market. Certainly producers in Namibia and Botswana already source certain inputs from within the region. This is a feature of the market which is less developed in other sectors such as sugar.10

Government intervention

Governments across the five countries have intervened at different stages to support the development of their respective poultry industries. The Botswana government has placed tight trade restrictions that include banning imports of day old chicks and controlled imports of chicken meat and live birds among others.11 Namibia, which has a fairly young industry, has put in place quantitative restrictions on chicken imports which allow monthly chicken imports limited to 600 tons. Import licenses have also been introduced. Similarly in 2012, after facing stiff competition from imports, the South African government intervened to protect its industry by introducing temporal anti-dumping duties of 62.93%, and 46.59% ad valorem against imports of whole frozen and boneless cuts, respectively, from Brazil.12 The Zimbabwean government has applied a similar approach in protecting its industry through increasing tariffs, with imported chicken being restricted by a combination tariff of either 40% duty or US$1.50/kg.13 Finally, in Zambia there are restrictions on imports of chicken and day old chicks in order to promote domestic producers.

The high levels of protectionism in this industry draw from both industrial policy objectives, as well as the desire of governments to protect the industry which is considered strategic in terms of its labour absorbing characteristics. Of course, protection of this nature is not misplaced if firms are given appropriate incentives to develop their capabilities and competitiveness in the period of protection both in terms of their ability to compete domestically and in regional markets over time. During the period of protection domestic rivalry must be promoted in order to achieve the intended results in the long term.

Conclusion

The protection of domestic industries also means insulating large incumbent firms from competition which allows them to develop and sustain positions of market power over time. Similarities in terms of cost structures between vertically integrated operators tend to increase the ability and incentives of firms to tacitly or explicitly coordinate their conduct across the region. The cartel and abuse of dominance cases which have been brought in South Africa against some of the largest regional producers suggest that the industry is prone to anti-competitive behaviour and warrants careful competition law scrutiny if the potential benefits of developing effective regional value chains (which leverage existing cost advantages) and rivalry in this sector are to be achieved.

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Notes

 

  1.  Bagopi, E., Chokwe, E., Halse, P., Hausiku, J., Humavindu, M., Kalapula, W. & Roberts, S. ‘Competition dynamics and regional trade flows in the poultry sector: the case of Botswana, Namibia, South Africa and Zambia’. Presented at 7th Annual Conference on Competition, Law and Policy in Johannesburg, 5 & 6 September 2013.
  2. The Poultry Site. ‘Global Poultry Trends 2013: Continued Upward Trend in Chicken Consumption in Africa and Oceania’ (20 November 2013). 
  3. See note 1; and Zimbabwe Poultry Association (2012), ‘Industry cost breakdown’.
  4. Zengeni, T. 2014. ‘The Competitiveness and Performance of the Zimbabwe Poultry Industry’. Unpublished Masters Dissertation. University of the Witwatersrand, Johannesburg. 
  5. See note 1.
  6. See note 1.
  7. Grimbeek, S. & Lekezwa, B. (2013). ‘The emergence of a more vigorous competition and the importance of entry: Comparative insights from flour and poultry’. Centre for Competition Economics, University of Johannesburg. 
  8. See note 1.
  9. Grynberg, R. and Motswapong, M. ‘Competition and Trade Policy: The Case of the Botswana Poultry Industry’. Presented at 5th Annual Conference on Competition, Law and Policy in Johannesburg, 4 & 5 October 2011. 
  10. Paelo, A. ‘Regional dimensions of competition and trade in sugar and cement’. CCRED Quarterly Review, August 2014.
  11. See note 1.
  12. International Trade Administration Commission (ITAC). ‘Provisional payments on chicken meat from Brazil’. ITAC Media Release dated 13 February 2012.
  13. Ministry of Finance (MoF). ‘The 2013 National Budget Statement: Beyond the Enclave: Unleashing Zimbabwe’s Economic Growth Potential’. Presented to the Parliament of Zimbabwe by the Minister of Finance on 15 November 2012.
  14. Competition Commission of South Africa. ‘The Competition Commission settles poultry case with Astral’ (22 November 2012).