Astral puts cap on salary increases

151110 Astral Chicken.photo supplied

151110 Astral Chicken.photo supplied

Published Oct 19, 2012

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Ayanda Mdluli

Astral, the country’s second-biggest poultry producer, halted wage hikes through much of its operations to survive in what chief executive Chris Schutte termed as the worst period in 30 years for input costs.

A lot of turbulence had come from high and steadily increasing input costs, he said.

This week, Astral Foods also reported that earnings a share for its upcoming year-end results to September would fall by between 20 to 25 percent.

In an interview with Business Report yesterday, Schutte explained that the industry had suffered from adverse weather conditions locally and internationally which had had a significant impact on the company’s balance sheet. Raw material costs had doubled and the company could not pass them on to the consumer.

On a broader scale, the food industry was set to impose a 10 percent price increase as profit margins continued to be hampered by other input costs such as fuel and rising electricity prices.

In addition, the industry was plagued by weak consumer spending and high volumes of imports of poultry from Brazil and these had also put a lid on the company’s ability to recover high input costs.

“Management then made a decision on the freezing of salary increases at various levels through the company. We decided to freeze them on a case-by-case basis and look at salary increases at the entry level of the company. There will be no blanket increases this year,” he said.

The move was to prevent further job cuts, with 150 already made by August. Schutte said the company had engaged with unions and had made contingency plans for a potential backlash. However, it had sent a clear message that it was either freezing wages or face further downsizing.

“Do we increase everyone’s salaries and retrench 5 percent of our workforce or maintain jobs? This was not the time for demands,” he added.

A key factor that had contributed to the downward spiral of the industry, and the company’s performance, was the lack of new jobs creation which had resulted in less disposable income.

In addition, the low gross domestic product levels, coupled with the fact that various industries, such as mining, manufacturing and agriculture, would not be paying bonuses to their workers meant reduced spending over the coming festive season.

Nick Vink, a professor of agricultural economics at Stellenbosch University, said input costs were the biggest part of production for companies such as Astral and the drought in the US had ensured commodities were at an all-time high.

In addition, the US used a lot of its maize product for biofuel purposes which contributed to high prices. The problem was also exacerbated by the drop in demand for poultry in Europe.

Countries such as Brazil had found another market in South Africa, which had seen imports rise from 5 percent to 25 percent over the last few years. Brazil was importing as much as 1 000 tons of chicken every day into South Africa.

“The industry is under pressure, it is one of the only industries where most of its companies are listed in the JSE. You won’t find that with maize, so they need to produce profits. However, on a longer perspective, the industry is still lucrative and the demand for their products is increasing. They haven’t even started scratching the demand for their products in Africa. Their current problems are short term, but in the long term the industry is still lucrative,” he said.

Daniel Isaacs, an equity analyst at 36One Asset Management, said that consumers would most likely change their protein diets.

He added that freezing wage increases was not a viable long-term or short-term alternative.

It was still unclear if the move would result in a mass exodus of skilled workers to other industries, but Isaacs believed that workers had nowhere to go, which would keep the majority there.

“They don’t have many options and the company needed to do what they had to,” he said.

Astral’s share price dropped 0.53 percent R95.79 yesterday.

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