How power cuts hammered Astral Foods

The full impact of South Africa’s daily power cuts on the country’s largest poultry producer, Astral Foods, is revealed in the company’s results announcement for the first half its financial year.

The regular outages, known as load shedding, were a major cause of the 89% drop in Astral’s operating profit for the period. Others were high feed costs and water supply disruptions.

The company said load shedding costs for the six months were R741 million, of which R90 million went on the installation of diesel generators. Its forecast for the purchase of diesel to power these generators is R45 million a month – that’s nearly R1.5 million every day. It is also looking at solar installations on 13 sites.

Astral’s poultry division lost R283 million in the first half of the year, compared to a profit of R466 million last year. Sales were down as production was cut by 16.9%, averaging 4.9 million birds per week.

It said production disruptions caused by load shedding were “decimating all economy of scale benefits and operational efficiencies, being the cornerstones of Astral’s best-cost strategy.”

No dividend was declared for the period. Astral has put all capital expenditure on hold, except that required for maintenance and emergency measures in electricity and water supply.

There is some good news for Astral and its shareholders. Astral’s feed division scored during this period, increasing profits to R381 million, from R296 million last year.

A government ‘asleep at the wheel’

Astral said the South African government’s failure to deliver basic services such as water, electricity and rail transport were rendering the agricultural sector uncompetitive, and threatening national food security.

Astral expected a period of political instability in the lead up to the 2024 national elections, as well as both policy uncertainty and poor service delivery from the government.

“The macro-economic crisis in the country with negligible to no economic growth is hampering any prospects for job creation, with disposable income under severe pressure as the cost of living crisis deepens and a recession looms large.

“Failing infrastructure and the lack of service delivery from a ‘Government that is asleep at the wheel’ is placing a massive cost burden on businesses and the consumer alike.

“The dramatic demise of Eskom in the generation and distribution of electricity, of Water Affairs and the failing water supply networks, together with the disastrous state of Transnet, have destroyed the capacity of the agricultural sector to function efficiently and has hence become globally cost uncompetitive.

“The continuous costly disruptions to Agri-processing businesses and the integrated food production value chains, have left South Africa with deepening hunger and poverty levels especially amongst the most vulnerable of communities, and an even greater threat to food security is plausible,” Astral stated.

Import dependency will raise food costs, says Astral.

Astral also warned that deteriorating water infrastructure and load shedding are putting the country at risk of ultimately becoming dependent on food imports, leaving the poorest especially at the mercy of a volatile rand.

A potential shift to this worst-case scenario could mean rocketing food prices, CEO Chris Schutte said during an investor presentation reported on by News24.

“Profitability in the food sector is incredibly important to keep on producing food for our nation,” Schutte said. Relying on imports could mean that “food prices will rocket”, given the danger posed by the rand – which just last week hit a record low against the US dollar.

“And remember, if the masses are hungry, the rich and the fortunate won’t sleep,” Schutte said.