Avian flu pushes egg prices upwards, but not for long

The big issue in agriculture currently is the avian influenza spreading across South Africa, with Gauteng, Mpumalanga, Free State, Limpopo and North West being the provinces most affected so far. I understand that more than a hundred mostly commercial facilities have reported avian influenza cases. Notably, there are reported losses in parental stock for breeders of layers and in broilers. For this reason, egg supplies are constrained, as is evident on retail shelves.

I recently participated in two meetings held to address the immediate problem in the industry. The department of agriculture, land reform and rural development met retailers to assess the severity of the egg supplies and various response measures. Then the department met the poultry industry to receive an update on the spread of the disease and for the industry to obtain insights into the state’s veterinary services.  The significant steps following these discussions are measures being implemented by the industry and the government to control the spread of the disease. This is an ongoing process and we will probably receive an update this week.

Regarding egg supply constraints, the industry and the government agreed on assessing the possibility of importing fertilized eggs to rebuild the parental stock and also to import table eggs — powder and liquid eggs to supply the baking industry and free the whole eggs for human consumption. These processes will take a few weeks because of the logistics around them and for individual businesses to make decisions without the government interfering with what strategies companies should follow. Therefore, in the near term, one can still expect supply constraints of eggs at the retail level to persist.

Beyond these interventions, I understand from various conversations with department colleagues that there are also discussions about vaccinations to curb the spread of the disease, as well as protocols that will guide vaccination should this be agreed upon by the industry and regulators. The regulators are likely to assess the efficacy, quality and safety of such vaccines. Furthermore, the possibility of a rebate for imports of poultry products is being reviewed by Trade, Industry, and Competition Minister Ebrahim Patel, through the International Trade Administration Commission of South Africa (ITAC), and Minister Thoko Didiza, of the agriculture, land reform and rural development department.

The ITAC will communicate a view on this matter in the coming weeks. The intention is to have measures in place to increase poultry imports in case of domestic supply constraints and to avoid possible significant price pressures on consumers. Notably, such trade measures must be considered with an appreciation that the South African poultry industry has endured difficult years of higher feed costs (maize and soybeans) and intense load-shedding, which has increased production costs and constrained businesses. Any trade policy instrument will have to maintain a balance between consumer welfare and the sustainability of the domestic poultry industry.

Regarding price pressures on consumers, there is anecdotal evidence from various retailers that have adjusted egg prices significantly to manage the demand. Such price adjustments in a short period have raised concerns about the possible effect of the avian influenza on food inflation. What will matter is the duration of these higher prices, which we doubt will persist if the interventions of imports and control of the spread of the disease are successful. The increases could be a temporary blip, which will probably show on one-month inflation figures, and the trend would then return to the expected path of deceleration or a sideways shift.

Also worth noting is that in the food inflation basket eggs have a lower weighting, at 0.4%, which means the effect may not be as pronounced in an overall inflation figure. Poultry products that have a slightly higher weighting of 2.09% have not increased at the retail level as significantly as eggs. Given that the poultry products supply is still relatively good and various trade measures are under consideration, there should not be supply constraints in the foreseeable future.

Ultimately, this is a difficult time for the poultry sector, and the financial effect of these dominant, highly pathogenic strains of avian influenza — H5 and H7 — will be evident over the coming weeks. The consumers will continue to see a constrained supply of eggs in the near term. Still, I suspect the various interventions under evaluation will have a positive effect and that the price of eggs at retailers could adjust downwards as supplies become more available.

Wandile Sihlobo is chief economist at the Agricultural Business Chamber of South Africa and author of A Country of Two Agricultures.