South Africa’s Competition Commission is investigating vertical integration in the poultry industry, where large producers combine all stages of chicken production, from feed and rearing to processing. Marthinus Stander, CEO of Rainbow, explains why that business model keeps chicken prices low.
The South African poultry industry is at a crucial juncture; as one of the largest agricultural sectors in the country, its sustainability and growth have far-reaching implications, not just for the economy, but for the millions of consumers who rely on the affordable protein it provides. At the heart of this industry’s future lies a simple yet powerful concept: bigger is better. Vertical integration is not merely a business strategy; it is the backbone of a flourishing, competitive, and consumer-friendly poultry sector.
Globally, the most successful poultry industries are those which have embraced vertical integration. This model, which connects the entire production chain from the breeders, feed mills, farms and hatcheries to the processing plants, is essential for achieving economies of scale. In South Africa, where five major players produce approximately 70% of local poultry, this approach has proved fundamental in keeping the quality up, and the price low.
Despite concerns that this concentration might be anti-competitive, the reality is that vertical integration enables these companies to produce chicken much more efficiently and at a significantly lower cost. This efficiency directly benefits consumers, who enjoy more affordable products, and the industry, which remains competitive against international imports. As global markets continue to evolve, the ability to produce cheaper chicken is not just an advantage – it is a necessity.
It is understandable that there are concerns about monopolies and oligopolies, especially in essential industries like food production. However, in the context of the domestic poultry industry, the notion that market concentration stifles competition and hinders smaller players is largely a myth.
The real threat to competition and consumer prices comes from disrupting the economies of scale that vertical integration enables. Breaking up large producers or preventing them from growing would not foster competition; it would drive up costs dramatically. Smaller players who lack the resources and scale would struggle to keep prices down, ultimately harming the very consumers these concerns aim to protect.
Growth is not just a strategy, it is a primary requirement for survival in the poultry industry. In the past three years, Rainbow has seen a 26% increase in volume, with 18% of this growth attributed to expansion at our Hammarsdale plant, where we reopened the section closed in 2017 and reinstituted the second shift. This growth is not only about increasing output—it is about maintaining competitiveness, covering inflationary costs, and continuing to meet the rising demand driven by population growth and urbanisation.
As demand for poultry rises, the industry must scale up accordingly. Larger volumes allow for cost absorption, which in turn keeps chicken affordable for consumers. This is particularly important in a market where passing on all production costs to consumers is not feasible. There is always a lag in how costs are transferred to prices, making volume essential. The more chicken produced, the cheaper it becomes, reinforcing the cycle of affordability and competitiveness.
For the South African poultry industry, the path forward is clear: continue to grow, continue to integrate, and continue to scale. Vertical integration is not an obstacle to competition – it is the engine that drives it.
Big is needed to have small: It is the big integrators that supply bagged feed and day-old chicks, enabling smaller players to service the informal and rural market. Bigger is indeed better, not only for the industry’s sustainability but also for the benefit of consumers who rely on affordable, high-quality poultry products.
As we look to the future, it is essential to support the growth and integration of our poultry industry leaders. Only by doing so can we ensure that the South African poultry industry remains robust, competitive, and capable of meeting the demands of tomorrow.
The message is simple: bigger is better – better for the consumer, better for the industry, better for job creation and ultimately, better for South Africa.
