South Africa’s poultry value chain is under pressure due to the extremely high raw material cost for maize and soya, which make up the feed component that constitute 70% of the production cost of a chicken, says the South African Poultry Association (SAPA).
Izaak Breitenbach, the general manager of SAPA’s broiler organisation, said this had pushed up poultry prices.
“Load shedding is a factor that is now becoming significant in the production process, causing abattoirs not to be able to slaughter the required amount of chicken per day. The consequence is that chickens are on the farm consuming feed to the detriment of the profitability of the industry and not in the marketplace.
"This causes a shortage of the preferred small chickens in the market, while we have too many chickens on the farm. This, as well as generators being run, is costing the industry 75c per kg meat produced. Poultry producers are currently making a loss of approximately R2.00 per kg,” Breitenbach said.
The chicken value chain starts at the breeder farm, then hatcheries, broiler farms and abattoirs, before the product is dispatched to retail and wholesale customers, as well as caterers and restaurants.
SAPA said what South Africa saw happen in December last year was going to continue this year.
“Raw material prices will remain high, with load shedding remaining at elevated levels. Should load shedding go to Stage 8, it will have devastating consequences on the industry, leading to a significant shortage in the market and with serious upwards pressure on price.
"This is why the (Department of Agriculture, Land Reform and Rural Development) Minister (Thoko) Didiza is facilitating a task team to address the load shedding dilemma to ensure food security and that prices don’t escalate out of hand.”
Breitenbach said poultry meat prices had escalated by 17% last year due to a 22% increase in feed costs.
“This, together with the impact of load shedding and dumping of product in the market, has put upwards pressure on the price of poultry meat and led to shortages of supply, specifically to the fast food restaurants during December,” Breitenbach said.
In its latest Food Price Monitor, comparing January this year with January last year, the National Agricultural Marketing Council (NAMC) said abattoir selling prices of frozen, individually quick frozen (IQF) and fresh chicken portions increased by 17.0%, 15.7% and 11.5%, respectively.
NAMC also said the upward pressure on poultry prices was mainly attributed to the severe outbreak of highly pathogenic avian influenza (HPAI) in Europe, North America and some South American countries, combined with supply-side impacts linked to the Russia-Ukraine war. In South Africa, it said, modest global price declines caused by weaker consumer demand was offset by the weaker exchange rate, as well as high input costs.
In its Food Cost Review 2022, published earlier this month, NAMC said the agricultural sector continues to make a noticeable contribution to the country’s Gross Domestic Product (GDP) and employment creation. It said primary agriculture contributed 2.5% to GDP in 2021 and employed, on average, 838 000 people.
The three agriculture sub-sectors, namely crops, horticulture and livestock, contributed significantly to agricultural trade.
“For example, despite logistical challenges and trade measures imposed throughout the year, the horticultural sector has recorded a significant share of exports on global trade through exports from the pome [fruit] and citrus industries. Similarly, trade in livestock has flourished, despite outbreaks of animal diseases like avian influenza (AI) and foot-and mouth disease (FMD), high feed prices and escalating input costs.”
In the same review, NAMC said the feed costs, changing consumption patterns and animal disease outbreaks like AI were the main contributors to increases in poultry prices. It said that between January 2017 and April last year, the monthly average producer prices for chicken in frozen portions, fresh portions and IQF chicken portions increased by 27.4%, 23.5% and 22.2%, respectively. In the same period, it said the monthly average retail prices of IQF chicken portions (2kg), fresh whole chicken (per kg), and fresh chicken portions (per kg), increased by 39.4%, 33.9% and 22.4%, respectively. On a year-on-year basis, it said retail prices for fresh whole chickens and fresh chicken portions were down by 7.0% and 2.3%, respectively, in April last year, while IQF prices increased by 19.8%.
Tony Da Fonseca, managing director at the OBC Group, a local retail brand, said current market conditions were driving up input costs in the sector in an environment where consumers simply could not afford any price increases and poultry producers simply could not afford to absorb these increased costs.
“Reduced production will also add to shortages,” Da Fonseca said.
He said the poultry sector was being severely affected, with almost every poultry producer being left with no choice but to dispose of day-old chicks as load shedding has severely affected the ability for poultry producers to slaughter chickens.
“Some producers have had to dispose of up to one million chicks due to the inability to slaughter on time and as needed,” he said.
The OBC Group added that the quick service restaurant (QSR) sector was already affected by the unavailability of smaller chicken portions, and the abattoirs running numerous days behind in slaughtering. It said food retailers were currently less affected, but given the number of chicks that have been disposed of, retailers were expecting shortages in the next 12-week cycle, which would inevitably increase costs to consumers.