Johannesburg - Consumers could pay about R2 more for a kilogram of frozen chicken in the future as poultry producers choke under pressure from sharp gains in input costs and higher imports.
The SA Poultry Association (Sapa), which represents chicken producers, said yesterday that local poultry producers had been holding out on hiking prices for far too long and would have to act in the near future.
Poultry is the single biggest source of protein for South Africans, with chicken and eggs accounting for more than 60 percent of all the animal protein consumed.
Individual quick frozen portions account for almost 65 percent of the total volume of chicken sold locally while fresh chicken only makes up about 11 percent of the market share.
Poultry producers, including Astral Foods, Sovereign Foods, Country Bird, RCL Foods and Afgri, have been exposed to record high yellow maize prices, which constitute about 50 percent of chicken feed.
They have also been faced with high chicken imports despite the tariff increase on imported portions last year.
Sapa’s chief executive Kevin Lovell, argued that although there had been some claims that chicken prices were high, they had actually remained consistently low.
"The reality is that retail prices of frozen chicken have declined,” he said.
He added that the latest statistics showed that, overall, chicken price inflation continued to lag behind the overall food inflation index.
According to Lovell, broiler producer prices have increased by less than half a percent since 2008.
He said producers had been taking the price hit along with retailers to some extent.
“Most producers lose about R1.50 to R1.80 per kilogram of chicken at the moment.”
Lovell said because of the above reasons, frozen chicken prices should increase but he was not sure if this would happen as history was against chicken producers.
“Common sense tell us that it should happen but history does not support common sense. The forecast is that companies which are doing badly will perform worse and this cannot carry on indefinitely.”
If the frozen chicken price goes up, companies may do better, however, consumers will have to pay more or consume less protein in their diet.
If companies wanted to improve their margins, then the price of a kilogram of chicken would have to go up by R2, Lovell said.
Should producers increase the price, they will run the risk of a volume decline. Vunani Securities analyst Anthony Clark said the poultry industry had for a number of years been struggling with inefficiencies.
“In the last two years the rise of imports and, more importantly, rising input costs from high feed costs and energy costs have hit their margins. This has been made worse by the weakening of the rand,” he said.
Producers have been unable to pass on these costs to the consumer because the consumer does not have the money.
“Producers want to increase the prices by justifying that they do not have control over the input costs hikes. However, retailers that dominate the sales of poultry products will not allow price rises to be too aggressive,” Clark said.
Should prices go up, there would be volume decline, he added. “All they [chicken producers] have done is to push for price increases rather than becoming more efficient and adapting to market dynamics.”
In the past two months, producers have benefited from the increase in import tariffs on certain cuts. However, these benefits would be eroded by the Department of Agriculture’s decision to halve the amount of brining allowed in frozen chicken, he said.
Clark added that prices always dropped in the period after Christmas. - Business Report