Consumers are also likely to be battered by floods of misinformation from chicken importers, claiming wrongly that the price increases are due to the recent imposition of anti-dumping duties on dumped chicken imports.
Despite these misleading claims, the facts have been clear for a long time – poultry producers are making huge losses because of the cost burdens of daily power cuts, known as load shedding, and steep increases in the price of feed, which constitutes 70% of the cost of raising a chicken.
Some details were given in May, when South Africa’s largest poultry producer, Astral Foods, announced results for the first half of its financial year. Operating profit was down 88%, with load shedding costs of R741 million in that half year, and a projected R844 million in the second half.
The company was selling chickens at a loss because the costs of load shedding and more expensive feed could not be recovered in selling prices.
It’s a similar story at RCL Foods, owner of the second largest poultry producer, Rainbow.
RCL this week announced results for the year to end June – headline earnings were 46% down, with losses at Rainbow because of load shedding and feed costs.
In a radio interview, RCL CEO Paul Cruickshank said the whole poultry industry was making losses and chicken prices would have to rise if they were to stay in business.
“The chicken prices do need to increase; I mean, our results are clear in the losses we’ve posted for Rainbow, and the competitors will be very similar. We are up against a consumer who can’t afford to pay… but chicken businesses across the country are making losses.”
Both producers have kept prices down because consumers are reluctant to pay more. That may not last, because selling at a loss if not a sustainable business model.
Beware, the Competition Commission is watching
A further complication for struggling poultry producers is that the anti-dumping duties imposed on five countries in August may be revoked if the Competition Commission thinks they’re profiteering.
Trade, Industry and Competition minister Ebrahim Patel said he would ask the commission to monitor price rises. If there were unjustified increases “aimed at taking advantage of the introduction of the anti-dumping duties”, then the duties could be suspended.
Trouble is, this is the same Competition Commission that got it embarrassingly wrong earlier this year, using flawed reasoning to suggest mistakenly that price rises showed that producers and retailers were exploiting consumers. It seemed to ignore the impacts of the war in Ukraine, rising feed prices and the huge burden of load shedding.
All three factors are still present. Let’s hope that the commission gets the telescope the right way round this time.