Johannesburg - Chicken producer Sovereign Foods joined its competitors in reporting a decline in interim results, fuelled by low consumer demand, cheap imports and high feed costs, the company said on Friday.
South Africa’s fourth-largest poultry producer reported a decline in headline earnings a share of 9 percent to 18.9c for the six months to August as feed costs increased and imported chicken took a big chunk out of sales.
The company said feed costs, such as soya and maize, had increased by 22 percent a ton in the period while sales volumes were 4 percent lower.
Sovereign Foods said although the government had increased tariffs on chicken imports last week, “the bulk of leg quarter imports originate in the EU and these import tariff increases will only apply to countries other than the EU”.
Last week South Africa raised tariffs on several imported chicken products by 8.75 percentage points on average, while it hiked tariffs on “whole birds” to 82 percent, to protect local producers.
These increases did not apply to chicken products from the EU because of a trade agreement with the region.
On protection of the local poultry industry, EU ambassador to South Africa Roeland van de Geer said that as soon as one started protecting too many industries one could end up on an “expensive island” that no one could afford to access.
South Africa needed to find ways to “address the real issue”, which was that production costs were often too high and threatened to make the country uncompetitive.
Van de Geer said industries such as poultry or sugar were established and needed to be competitive.
Besides rising imports, high feed costs have been blamed for the industry’s woes.
Local chicken producers are forced to import most of their feed from countries such as the US as local prices are too high.
Sovereign Foods said that although higher import tariffs would provide relief from cheap chicken imports, high production costs would continue to stymie the industry.
The company said the cost of maize had decreased in the US but a weaker rand and a lower-than-expected local maize crop meant local producers could not benefit fully.
The Chicago Board of Trade spot maize prices declined by 14 percent over the six months from February from the preceding six months but local maize prices had not declined to the same extent, with white maize only decreasing by 3 percent in the period, the company said.
Sovereign Foods said profit before tax declined by 5.8 percent to R20.2 million from R21.4m in the same period last year, as conditions tightened.
“The introduction of additional import tariffs should lead to a more stable balance between poultry supply and demand and bring some relief to the industry.
“However, in the near term, industry margins could remain suppressed due to high feed and input costs and a constrained consumer,” it said.
Industry peers Country Bird Holdings, Afgri and RCL Foods (formerly Rainbow Chicken) recently reported significant declines in their full-year earnings.
South Africa’s largest processor and marketer of chicken, RCL Foods, reported a loss of R3.7m for the year to June after what it called an “extremely difficult period”. The company said it experienced “record feed input costs” that decimated margins.
Afgri chief executive Chris Venter said last month that the high input costs, low consumer demand and cheap imports created a “perfect storm” as the company recorded a loss of R24.7m for the year to June.
“The consumer remains under pressure from among other things, above-inflation increases in energy and transport costs, and these increases continue to reduce the amount of disposable income available for food,” said Sovereign Foods.
Sovereign Foods’ shares closed unchanged at R5.65 on the JSE on Friday. - Business Report