Johannesburg – As the country recovers from the worst drought in history, the local poultry sector seems to be recuperating and forecasts show the likelihood of significantly better summer crops, causing food prices to drop.
Astral Foods and Sovereign Foods this week exhibited the scars brought on by the recent hardships in the chicken industry.
Key factors that hurt the sector include increases in the price of agricultural commodities, which, in turn, sent feed prices soaring, an avalanche of imports, the stagnant South African economy and new brining regulations. Brining is the use of salty water to preserve chicken.
Mealies and soya beans are the main ingredients in chicken feed – mealies make up 60% and soya beans make up between 20% and 25% of feed costs. South Africa’s second-largest mealie crop is expected to be harvested this year, and a record soya bean crop has been forecast.
Astral reported a significant drop in profit, and Sovereign sustained losses.
Chris Coombes, the CEO of Sovereign Foods, said the industry “has been in a difficult place; it has been in a very bad position”.
From a feed cost point of view, the worst seemed to be over, but the pricing of poultry imports remained a key driver of sector prosperity, Coombes said.
The losses in the sector led to RCL Foods (previously Rainbow Chickens) cutting 1 500 jobs in KwaZulu-Natal in March, and Mike Chickens in Polokwane closed in July, resulting in 600 jobs being lost.
The job losses led to a task team being formed to deal with the crisis in the industry.
Looking ahead, Astral warned that weak consumer spending was unlikely to improve because of poor economic growth and high levels of unemployment.
Astral has also been fighting possible power cuts by Eskom at the company’s operations in Standerton, Mpumalanga, which the company has headed off through a court order.
Coombes said Sovereign wanted to reduce its interest in commodity aspects of poultry, and instead move into higher-value products and grow its exports.
Sovereign is exporting poultry to Dubai.
He said the local poultry industry had not been innovative enough compared with the beef and ostrich meat industries.
About 40% of local beef and up to 80% of ostrich meat is exported, but less than 1% of poultry output is exported.
Coombes said the company’s focus would be on extending its exports to the rest of the Middle East.
Sovereign has so far steered clear of exports into Africa because of foreign currency issues – there is a risk that the company might not get a financial return on the exports it sells.
“Africa is difficult to get into from a phytosanitary point of view. African countries also tend to protect their poultry industries, so you struggle to get in there. We have tried – we have sent samples out there. The currency issues also mean that you are not sure if you are going to get your money out,” Coombes said.
By Justin Brown
First Published in Fin24 on 21 May 2017