John Wright, SAPPO’s vice chairman, delivered a paper on the pig industry at an agricultural outlook conference held by AMT in Pretoria last year. An excerpt of his speech appears below.
“What single factor has had the greatest impact on the competitiveness of the Pork Industry? To my mind this was the election in 1994. We were given the opportunity to take the destiny of our industry into our own hands. The election was not just a change in government – it was a change in ideology.”With the demise of the control boards, out went price support; out went surplus removal and out went much of the protection we had enjoyed. In came the free market system – something we had all been clamouring for – but reality differed from expectation. We had to learn that the “free market” means you have to look after yourself, because the state won’t do it for you and the reality of the “free market” means you become captive to a more demanding and harsher master — the world economy.
So from a secure environment of protection we were catapulted into the global economy. For the first time we could cut the provincial and inter specie bickering and identify our real competition. On an organisational basis we had to swim or sink.
SAPPO (the South African Pork Producers Association), a voluntary funded body, has allowed us to charter our own course. We have been able to prioritise the needs of the industry, uncomplicated by political necessity or inter-specie expediency.
SAPPO has the maturity to recognise that voluntary funding has served its purpose and is in danger of becoming divisive. We need to harness the combined potential of the entire industry in our bid to gain market share and compete in the international market. As an organisation we are supremely competitive.
However, we need to deal with one factor or principle which will determine the future of South African agricultural competitiveness. History shows that it is difficult if not impossible to achieve political stability on an empty stomach.
It may be an over simplification of a complicated problem but the single factor which will determine our future competitiveness is a policy decision —based on a principle.
Cheap food or food security
The two are not necessarily antagonistic but they do require a different mindset.
We know government is bound by protocols of world trade, but the developed world doesn’t give a damn about protocols — they protect their own interests and somehow we need to take a leaf out of their books.
Government is to be congratulated on his stance at the recent rounds in Cancun. I don’t believe we will see any reduction in subsidies, but I am confident that access to their markets will be eased.
However, as a primary producer I would ask that some caution be exercised — that in our pursuit of a share of the lucrative markets of the developed world, we don’t leave our back door open for others to use as a dumping ground for excess production.
On the broader front of competitiveness it is vital that as an industry we prioritise the development of lines of communication with government. We need to harness all the powers at our disposal to protect the local industry — to promote South African production — and a speedier and simpler mechanism must be found to facilitate the adjustment of tariffs.
And most important we must establish our bona fides with government. We do not seek protection for inefficiency, all we ask is for the playing fields to be level.
Lets look at how level these playing fields are.
A few weeks ago the Sunday Times carried an article stating that the developed nations contribute R300 billion to agricultural subsidies in their countries.
Another international publication quotes the following figures for Brazil — a R1.1 billion subsidy will be provided for land, silo and warehousing improvements, a further R2 billion will be available for modernising machinery and equipment. This in addition to standing state and municipal subsidies.
Incidentally over the past eight months 48% of pork which has been imported into South Africa has come from Brazil and 27% from France.
What subsidy is there for agriculture in South Africa? Compare our interest rates with the developed world! Are the playing fields level?
To talk of empowerment in agriculture or the development of an emergent farmer component to the industry can be no more that an unrealistic dream or empty political slogan until agriculture is stable and efficient producers are able to realise a fair return.
The conclusion could be drawn that our competitiveness in the face of subsidised production in other countries is impossible.
Difficult, but not insurmountable
In most pork producing countries there are two distinct categories of production — small household or subsistence producers with low overheads and pretty basic production and quality, and then the large commercial units.
In Europe and America as part of large unit production are the networkers and I believe this is a system we could adapt and develop in South Africa to build a viable emerging farmer sector, and assist smaller commercial producers.
Economies of scale and access to capital, have established a trend to bigger units throughout the world. In Australia there were 50 000 producers in 1960. Last year there were 2 500.
Certainly there are many successful smaller units but unless they have access to capital, a cheap food source or a niche market, they will not remain competitive in the industry itself, never mind in competition for the consumer.
Today the customer is king and quite rightly so in a consumer driven market. Quality is the operative word and in pork production quality is driven by modern, not modified genetics, environmentally controlled housing and improved management systems. Food safety is of paramount importance. They, the smaller producer, in fact all producers, are faced with the dilemma — adapt or die. Simple to say, but not easy to accept and certainly much easier said than done bearing in mind the cost of entry and exit from the industry.
The current cost of entry, that is starting a new piggery from scratch and developing it to point of first sale is 22 000 to 2 000 rand per sow. There is open argument whether anything under 1 000 sows would justify the capital investment, which means an investment of 22 to 25 million rands.
These are some of the realities of pork production.
But we do have a lot in our favour. South Africa enjoys many advantages in terms of health, not least of which is our climate — hot and dry. This eliminates some of the devastating diseases present in overseas herds, although we have some specialities of our own.
Food safety requires quality assurance supported by traceability and the industry is moving swiftly to enforceable bio-security.
The industry is served by dedicated, highly professional, specialised pig consultants.
A word of warning
The lack of priority afforded veterinary services and budget constraints in some provinces is a cause of concern and will mitigate against the smaller producer.
Serological testing of the national herd on a statistically relevant basis is ongoing and is of critical importance in dealing with both imports and exports.
New management practices are allowing those producers who can afford it, a quantum leap in terms of the elimination of disease and improved production efficiency. Indeed this practice, control of depop/ repop is in my opinion going to have the greatest short-term impact on the industry.
This practice will lower production cost, improve competitiveness, but it requires capital and it will place extreme pressure on less efficient producers.
Environmentally controlled housing increases the comfort of the pig and helps to maximise production by reducing mortality and increasing growth. The fact is that modern pig production is pretty hi-tech and we have the expertise in South Africa to compete with the developed world.
We have the advantages of space and environmental pressures are not as intense. For instance, Holland has reduced it’s national pig herd from 1.3 million to 900 000 thousand.
As we discuss the competitiveness of pork we need to get world production into perspective because this does have an influence on our domestic industry.
There is no question that internationally, pork as a protein source, reigns supreme. In total 40% of all the meat eaten in the world is pork.
Production has risen by about 8% since 1998. It is estimated to rise by a further 4% over the next three years.
Statistics show that most of the producing nations are importers as well as exporters. Trade up 26.5% in the past five years. Thus export markets are at a premium with health the single biggest inhibitor, and control. That is why our national herd health is so important.
By contrast, the South African industry comprises some 100 000 sows, slaughtering 1.8 million pigs, giving a total production of 115 000 to 120 000 tons per annum with a per capita consumption of 2.6kg.
Compare this to Brazilian production of 2.6 million tons, the USA 8.9 million tons, the EU 17.6 million tons and the big one, China, a staggering 43 million tons.
Whether we like it or not, big is beautiful in pork production, and South African production is totally insignificant in world terms.
On the international scene, South Africa is further handicapped by the fact that two of the diseases most feared in the world are endemic, namely African Swine Fever and Foot and Mouth disease.
A superficial appraisal of the situation then would discount any possibility of international competitiveness.
However, it is in the very negative nature of what I have mentioned, and the insignificance of our production that our greatest potential lies, and it is here we must measure our ability to compete.
On the domestic front a 2.6kg per capita consumption is ridiculous — it was 3.4kg 30 years ago.
As a first step, SAPPO, if successful with it’s levy application, has budgeted for nearly R5 million on promotion, thus for the first time, achieving critical mass in terms of advertising. The current budget is only 1.1 million.
Primary producers are concerned that we lose control of our product once it leaves the farm gate. Last year when low producers prices forced the exit of some producers, pork was still being marked up 35 to 40%. That is the prerogative of the retailers, but this may necessitate strategic export of pork.
A formal investigation into the feasibility of pork export has been finalised. Despite our strong currency, exports are taking place, albeit at a low level, but there are positive developments in this regard.
Producers, abattoirs and processors are starting to sacrifice independence for stability. Alliances are being formed and the seed has been sown to shorten the production chain and reduce cost.
On the political front, bilateral agreements must have potential — bearing in mind that volumes significant in the South African industry would be inconsequential in many markets.
Niche markets too small for the major players can and must be exploited.
In some respects the very negative connotations of ASF and Foot and Mouth can also be used to advantage. We have controls in place. If I’m correct there has not been an outbreak of ASF in a controlled piggery for 40 years. Controls in this regard are accepted by the OIE and agreement in principle has been reached for certain piggeries in the ASF region to be compartmentalised and restrictions on movement in and out of South Africa will be lifted.
The acceptance of the principle of compartmentalisation has far reaching possibilities in respect of other diseases. The situation is not all negative and as you have heard, there are possibilities. As a producer I am excited by the challenge of the future.
- As a prerequisite for competitiveness, producers need to know they have government backing to produce food.
- The focus of the industry is on the domestic market supported by strategic export.
- You will note I have not referred at all to competition with other species. We face a common enemy, let’s not waste time building domestic laagers. • Lets retain our identities but combine our strength to use as a foundation to compete in the world economy.
- Our product is versatile — not just in the preparation of fresh meat, but in its range in the market from low priced emulsion products to luxury fermented products.
- The wholesale catering and leisure industry remains relatively unexploited.
- Reducing cost of production remains a priority for producers — and the fast food market beckons the entrepreneur.
- We must be able to increase market share.
- On a sad but more competitive note, family business and co-operatives are giving way to business where the bottom line is the motivation — the industry is becoming progressively more professional and with that its competitiveness increases.
- On the political front — I believe we are making progress and exciting potential exists.
- Margins will be thinner and some producers will fall by the way.
- We must play to our strengths, not our weaknesses. .
- The giants of world production dominate us. It is not sensible to try and compete with them, but if we can turn the crumbs from their tables into full loaves of bread in the South African context, let’s do so.
- We are giants on our continent and we need to develop this potential where we have critical mass and the playing fields are sloped slightly in our favour.
- Competitiveness is not just about price, strength or value — it’s also about being smart.