Foul play in fowl industry
Mbongeni Mguni | Friday April 25, 2014 12:03
On Tuesday, heads of African competition authorities meeting in Marrakech, Morocco received a draft of a study across South Africa, Zambia, Namibia and Botswana into competition and trade issues within the poultry sector. The Botswana Competition Authority was heavily represented at the meeting, led by its director of competition and research analysis, Mokubung Mokubung.
According to the study, done under the auspices of the African Competition Forum (ACF), Botswana poultry industry prices – from production to retail, feed to broilers– are the highest of the studied countries and significantly so in certain aspects.
While the study affirms the widely known cartelisation of the poultry industry, for the first time figures have been revealed as to the cost the local consumer is suffering purely by consuming chicken in Botswana as opposed to elsewhere in the region.
According to the data, Botswana poultry producer prices were measured at US$3.15 per kilogramme in 2012, compared to US$3.01 in Zambia, US$2.23 in Namibia and US$1.64 in South Africa. Mark-ups placed by retailers on the producer price mean Botswana is significantly ahead of the pack in retail prices.
The ACF’s figures show that from feed cost, to broiler production and abattoir processing costs, Botswana is firmly ahead of the field, with the snowball effect of the costs landing on the hapless consumer.
“The large domestic producers face limited competition and could be engaged in unilateral conduct bordering on over-pricing of poultry products at both feed and broiler breeding levels,” reads the ACF’s report released on Tuesday.
“This concern is heightened by the price of poultry in Botswana, (which) is amongst the highest in the region.”
According to the researchers, the dominant players enjoy a protected operating environment and are able to dictate terms to smaller players seeking a foothold in the market.
“The relationships between the abattoir and processing plant with the contract growers place the smaller farmers in a challenging position as they appear to be set up to fail,” the report reads.
“Abattoirs seeking to integrate backwards, develop contract grower relationships with the smaller farmers.
“The abattoirs buy feed and stock on behalf of the small farmers. When the small farmers do not meet their targets they have to pay the abattoir back. “There is a concern that the contract growing agreements with abattoirs will contribute to eliminating the smaller farmers resulting in decreased competition.”
The structural deficiencies noted by the ACF researchers were the subject of a 2011 Botswana Institute for Development Policy Analysis (BIDPA) study which found that the major poultry players controlled the industry from feed, to breeder and boiler production to abattoirs and processing. These giant players – in an industry valued at P900 million annually – also had their choice of the most lucrative retail arrangements.
The ACF’s researchers point an accusing finger at government’s own policies for the lopsided state of affairs in the poultry sector. According to the study, the ban on imports of poultry and limitations on feed and fertilised egg imports have largely worsened the imbalance in poultry and the resultant blowback on consumers.
“A person entering Botswana is only allowed to bring in five kilogrammes of poultry products and importing live birds and day old broiler chicks is banned,” reads the report.
“The importation of fertilised eggs (to produce broiler day old chicks) into Botswana is restricted and is expected to be completely banned.”
The protection of the local poultry industry means that local retailers are unable to make price gains for consumers by importing from neighbouring countries such as South Africa, where production efficiencies mean lowest prices in the region.
Producers and feed manufacturers, meanwhile, are reaping the dividends of a closed market within which to operate, with the ACF’s figures indicating that most are returning healthy margins. The ACF’s researchers recommend that while wholly dropping protection for the poultry industry in the four countries is not recommended, greater regional integration would lower costs to consumers through economies of scale.
For instance, countries with strong agricultural production such as Zambia could provide competitive feed pricing for those without, which include Botswana.
“Long term protectionism could dampen any potential competition as a dominant incumbent has an incentive to keep small players out,” the report reads.
“For regional integration to be beneficial, the region needs a coordinated regional strategy that will seek to break down barriers and harmonise standards. “Competition law and policy at a country level and then ultimately in the region has a major part to play in regional integration.”