The South African poultry industry is under severe pressure, with daily power cuts adding to the impact of higher feed and other input costs, as well as poor infrastructure such as roads and water services in rural areas.
FairPlay has warned that this combination means the poultry industry faces a “perfect storm” of adverse conditions. Now the evidence is here, in the form of company announcements from South Africa’s two largest poultry producers, Astral Foods and RCL Foods.
The worst affected is Astral, which cautioned last year that market conditions were expected to deteriorate and that the good results of the 2022 year would not be repeated in the first six months of its 2023 financial year (October 2022 to March 2023). The details revealed in January were horrific.
In an update on the three months to December 2022, Astral said it was losing “at least R2.00 per kilogram” on every chicken produced, and that its earnings per share for the first half of 2023 were likely to be 90% below the same period in 2022.
Astral, which is spending R1 million per day on diesel for its backup electricity generators, has described the daily power cuts, known as load shedding, as “devastating” for the business. It said severe operational disruptions had led to abnormal additional costs and substantial production cutbacks.
A backlog in the broiler slaughter programme had resulted in older and heavier birds consuming higher levels of feed. Additional shifts were being implemented to try to address the substantial backlog in its integrated chicken supply chain, resulting in excessive processing costs.
All this, in addition to record high feed costs and what Astral has described as “the general decay of municipal infrastructure”.
Reviewing the Astral statement, the Daily Maverick said Eskom, the country’s electricity utility, was “leading the poultry industry to the slaughter”.
RCL Foods, owner of Rainbow, the country’s second largest poultry producer, was not as detailed in a market announcement this week.
It said earnings per share for the first six months of its financial year to December 2022 were expected to be between 20.1% and 26.3% below the previous year.
“Challenging market conditions persisted throughout the current period, with sustained high commodity input prices; above-inflationary price increases for other costs particularly energy and packaging; and unprecedented levels of load shedding, adding to the cost base, with the latter further impacting production and service levels.
“As a result margins came under pressure, and price increases to recover cost push had to be carefully managed in order to protect volumes,” RCL stated.
These are South Africa’s two biggest poultry producers, and other large commercial producers are likely to be similarly affected. As we reported last week, small-scale farmers simply cannot cope with these cost increases and persistent power outages, and are closing businesses and retrenching workers.
FairPlay therefore renews its calls for an emergency meeting of government and poultry producers to decide on a crisis plan for an industry that is critical for national food security, supplying 66% of the country’s meat consumption.
The plan should include a proposal for “VAT-free chicken” – the removal of the 15% value added tax from the chicken portions most consumed by poor households.
