Chicken Industry

Chicken producer weathering the Covid storm

By Charmain Lines.

Homegrown food industries have never been more crucial for food security than during this time of a global pandemic, when disrupted global transport and supply chains present real challenges to importers. The benefits of having local farmers big and small producing our nation’s most affordable and widely consumed protein right here cannot be underestimated. In South Africa, the local chicken industry has continued throughout lockdown to supply exactly this nutrition on which our society depends for health and wellbeing.

And while you are more likely to read stories about the industry heavyweights, this is not one of the biggest agricultural sectors for nothing. South Africa’s chicken producers are a richly diverse group with big, small and even smaller producers that create tens of thousands of jobs and infuse rural economies across the country with energy and avenues for growth and prosperity. As national assets go, you don’t get much more valuable than that.

Much of this value is added by the smaller producers whose innovative and flexible business models are enabling them to weather this time of social and economic disruption.

Henwil Chickens in the town of Lichtenburg in the Northwest Province is such a producer.

Established in 2002 as an abattoir, the business has changed beyond recognition over the past 18 years. When financial difficulties threatened its existence early on, the 13 chicken farmers who depended on the abattoir formed a company and bought the facility, becoming stakeholders in the truest sense of the word.

Following 15 years of organic growth into areas such as feed, retail and fleet, Henwil’s board of directors called on the business school of the Northwest University in 2017 to help them chart the way forward. The results of the business strategy exercise pointed to focused expansion: higher volumes, lower unit costs, increased competitiveness and healthier profit margins. Henk Alberts was appointed CEO and tasked with executing the new strategy.

Today, following a R88-million expansion project, funded through a combination of accumulated reserves and loans, the Henwil abattoir in Lichtenburg is certified to slaughter 110 000 broilers a day, up from 60 000 previously. In addition, its fleet of 30 vehicles, including refrigerated trucks, live bird trucks and bulk feed tankers, was centralised; a new feed mill, which will replace the existing one and be big enough to meet its farmers’ demand, is being planned; and its three retail stores are all profitable.

A major feature of the abattoir upgrade was the installation of one of the longest production lines and most technologically advanced cut-up machines in the southern hemisphere. The machine not only cleared the congestion that used to slow the line down, it also gives Henwil Chickens valuable flexibility in terms of the cuts it produces.

“Each of the machine’s nine modules is programmed to do a specific cut,” explains Alberts. “We can adapt to changing market demand without missing a beat, and we now have access to a wider range of markets.” He explains that due to Covid-19, the demand for breast fillets and whole chickens has fallen away significantly, but the market for individually quick-frozen (IQF) pieces is alive and well. “The margins on IQF are low, but that is what consumers are buying now and we are happy to be in a position to switch our production to meet that need.”

Henwil is fortunate that Covid-19 has not had an impact on either its shareholder-farmers’ ability to raise broilers or the running of its abattoir and factory. It is, however, loading the company’s operating costs.

Social distancing requirements have forced Alberts to buy in more transport capacity to get the 714 abattoir employees to and from work, implement sanitising measures for the vehicles, and appoint monitors to make sure that all passengers wear masks.

Monitors have also been deployed on the factory floor to help enforce social distancing and sanitising measures. For example, every 30 minutes, employees in a section of the factory leave their posts to wash and sanitise their hands. Foot traffic is controlled by means of lines painted on the floors, and it now takes longer for shifts to start as workers have to queue safely to get their PPE and have their temperatures taken.

“But we are lucky that our staff have bought into the measures and their high levels of adherence make us proud,” says Alberts. Henwil is furthermore in the fortunate position that staff salaries have not been impacted; in fact, employees received their annual salary increases at about the time that lockdown started.

The company’s sales are also feeling the impact. Until the end of April sales had been stable, but changing consumer patterns brought on by Covid-19 is clearly reflected in figures for May. Demand for low-value products, such as hearts, livers, gizzards, heads and feet, and soup packs has rocketed as consumers’ buying power tapers off. These products now account for 80% of sales compared to around 40% normally. As a result, high-value products, notably breast fillets, have to be stored until demand returns. At the moment, says Alberts, Henwil has a thousand palettes of chicken more in storage than what is normally the case. “We had to rent additional cold stores, which adds to our costs…”

A small but significant sales highlight is Henwil Retail, with the company’s three stores located in Lichtenburg, Mahikeng and Lephalale. Together, the stores sell about 14% of the abattoir’s production. The flagship Lichtenburg store also offers fresh vegetables, grocery items, other meat products and, under normal circumstances, takeaway meals. It is also poised for record earnings in May. “Our stores are all doing well in this time, and are immensely valuable for building our brand and maintaining a healthy cash flow,” says Alberts. A recent development at all three outlets, is small wholesalers buying from them to supply spaza shops in townships and informal settlements. “Our stores are not unique in this regard,” says Alberts, “retailers across the country are experiencing it as well.”

Given that Henwil counts large wholesalers among its customers, Alberts has a view of the state of imports – long acknowledged to be a significant threat to the local industry. While he doesn’t have sight of statistics, his sense is that the weak exchange rate, falling consumer demand and the implementation of trade tariffs as per the industry masterplan are already cutting imports, even without the more direct Covid-19-related disruption of global trade. However, he theorises that a lot of imported meat is lounging in warehouses, waiting for demand to recover. “We could only see the impact of these imports as far into the future as December.”

Alberts is hopeful that the industry masterplan, which came into effect in November 2019, will shore up the industry. He takes heart from the tariffs that have already been implemented, and from SARS’ commitment to improve the monitoring of imports to ensure accurate declaration of product and payment of tariffs.

In the meantime, Henwil contributes to the wellbeing and sustainability of the industry by being an agile business, a caring employer and a responsible corporate citizen. During the past few weeks it has donated about R20 000 worth of chicken to four old-age homes in Lichtenburg and Coligny, and joined forces with the Department of Social Development to distribute 2 000 food parcels to needy families. And, once lockdown eases, it will continue assisting the provincial government to establish and operate a new feed mill that will be part of the Springbokpan agri-hub, one of 44 such initiatives across South Africa, aimed at giving subsistence farmers a shot at commercial sustainability.

Henwil might only have about 5% of the national chicken market, but its impact on its town, local communities and province is exponentially more. Size is definitely not all that matters.

Henwil is a member of the South African Poultry Association.