Poultry producer Astral Foods believes it has overcome the worst of its challenges and should hit the break-even point within the first quarter of the 2024 financial period.
The firm’s executives spoke at a media briefing on Monday at which they said they expect to see a turnaround in the business after posting their first-ever loss in the 23 years they have been in business.
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The JSE-listed producer of County Fair and Goldi Chicken brands confirmed that its books sustained a net loss of R512 million in the year ended September 2023 compared to a profit of R1.07 billion in the prior year.
“We have been now for three months back to our normalised production efficiency levels, so that’s a positive. So, besides the embedded diesel costs and with indications that the feeding costs might come down in the new year, I think that we will be in the position to post a much better result next year,” CEO Chris Schutte said.
“The key thing is to be a sustainable business, fix and rebuild the balance sheet.
“We are positive as a management team that we have confronted the worst of all perfect storms and that we are in a fairly good position to go back to a normalised business from here onwards.”
The firm noted that the turnaround will, however, come with hefty embedded costs, most of which the overstretched consumer cannot afford to absorb.
According to Astral, the diesel it needs just to run generators during load shedding costs around R540 million per year. It said this, together with its existing production overheads, means it may be some time before investors start to see decent profit margins.
Consumers may have to share the cost burden, and while the firm did not specify what kind of price hike can be expected, it did note that even a R2 to R3 increase per kilogram of meat may be difficult for some consumers to absorb.
“We are very sensitive to them [consumers], but then we also want poultry to be a sustainable meat protein in the households of South Africa,” said Schutte.
“The country can’t afford to lose one or two or three of its bigger producers –it will make chicken more and more expensive, and if you have to rely on imports, that will eventually make chicken more expensive than it is now.”
Price hikes normal
Independent economist Dawie Roodt told Moneyweb that, unfortunately, price increases during strenuous market conditions are normal and an integral part of a free-market economy that consumers cannot be sheltered from.
“We all understand that the poultry industry is going through a very difficult time and [in] these kinds of circumstances it is completely normal that prices will increase, and the poultry industry will try to pass on these price increases to the consumer … which is likely to happen,” Roodt said.
However, he pointed out that with transport costs and energy prices declining, consumers might not have to stomach tough food increases for long.
“So although poultry prices may go up, I actually think it will be mitigated to a large extent by a fall in energy prices, generally speaking. Of course, a lot can happen over the next couple of months, but hopefully the poultry industry will correct itself and things will start getting better and prices will start coming down again and maybe in a couple of months we won’t have such a huge impact of poultry prices on the average consumer.”
Bird flu still a concern
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Even with projections of a better financial future, Astral says the spread of bird flu remains a risk for the industry, even in light of recent reports of declines in infection rates.
Schutte said lower infection rates should not be seen as a signal of the industry’s control over the virus but should rather be understood in the simple context of the virus not having enough birds available for it to compromise.
“What is happening is the infection rate has come [down] but merely on the back [of the fact] that there’s hardly any poultry left in the greater Gauteng and Mpumalanga area so your infection rate would come down and people now use that [to] classify and state [that the outbreak] is under control,” he said
“It’s not under control, it’s because the [population] density of chicken has reduced significantly – therefore your infection rate will come down,” said Schutte.
Group chief operating officer Gary Arnold added: “Bird flu remains a risk and a concern and obviously something we need to manage. We certainly can’t say that the risk is abated or gone. There have been recent outbreaks in the Free State and North West of H7N6 in the last two to three weeks, so [it is] certainly by no means over.”
The highly pathogenic avian influenza (HPAI) virus poses a greater risk to layer birds than broilers which are used in the production of meat, as layer birds’ reproductive duties place their bodies under greater duress, making them more susceptible to viral attack.
No rebate on import duties needed
According to Astral, the industry has imported large volumes of fertilised eggs to help plug the supply gap in the market and help restart poultry populations affected by the virus.
Astral says it has imported over 10 million eggs to date to ensure there is poultry meat available in the country.
It says this measure, among others taken by the industry, shows there is no need for the government to implement rebates on import duties of chicken meat.
In October, Minister of Trade, Industry and Competition Ebrahim Patel directed the International Trade Administration Commission (Itac) to look into the creation of a rebate on meat and edible offal of fresh or frozen chicken in efforts to mitigate potential shortfalls.
“We can prove to Itac and to the minister that all the levers that we have pulled to replace fertile eggs lost due to bird flu is sufficient not to have a shortage of chicken meat – not talking table eggs – over the festive period and into the new year. The industry is importing astronomical numbers of fertile eggs,” Schutte said.
“We have got enough evidence to prove to Itac – to build a case – that it is not necessary for the anti-dumping tariffs to be suspended.”
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