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The cost of load shedding has wreaked havoc on the profit margins of South Africa’s largest integrated poultry company, Astral Foods Ltd, for the six-month period ending 31 March.
Its operating profit declined by 88% to R98 million (March 2022: R785 million) over the same period. This decline was mainly due to the impact of load shedding and failing municipal infrastructure. The company’s load shedding costs alone amounted to R741 million.
The group’s revenue grew to R10 billion (March 2022: R9,4 billion). The increase in revenue was due to higher feed prices, which rose due to soaring raw material costs (high international grain prices), said Chris Schutte, CEO of Astral Foods.
“Load shedding forced us to feed the broilers for longer, which meant that additional feed costs were incurred,” Schutte said during the results presentation. “Furthermore, workers worked additional shifts, which led to increased labour and other related costs. We also had to spend more money on generator operating costs.”
Schutte said ironically enough, the group would have reported one of its strongest half year results if it was not burdened by load shedding. “At any given time, Astral has to take care of 40 million live chicks that are either being fed, reared or processed. It is logical that load shedding will have a massive impact on our business.”
Poultry division suffers
Revenue for the poultry division increased by 3% to R8,2 billion (March 2022: R7,9 billion), driven by an increase in broiler selling prices in a bid to recover the rapidly escalating cost of feed (up 28,9% for the period under review on the back of record high local coarse grain prices) and additional costs such as diesel due to load shedding.
Broiler sales volumes decreased by 10,6% (28 177 tons). The volume of broilers processed dropped by 16,9% for the period under review, equating to an average of 4,9 million birds per week compared to an average of 5,8 million birds in the prior period. However, there was only a 1,5% reduction in the total slaughter weight of broilers for the period as heavier birds were processed on the back of the load shedding impact.
During the six months ended 31 March 2023, Astral cut back production by 24,9 million broilers that were sold as either live birds or through broiler placements.
Food price concerns
Schutte warned government that South Africa will suffer if load shedding and service delivery did not improve. “The only upside to not turning a profit is the fact that we’re paying less tax,” Schutte added. “The problem is that we’re also not able to pay a dividend to our long-term investors, nor are we able to reinvest money in the company, which means that we’re unable to deliver more affordable food to the public.”
If the situation were to continue, the country would be forced to import more food. “This will lead to skyrocketing food prices, especially given the weak Rand at the moment. Politicians need to remember – if the masses are hungry, the rich and powerful won’t sleep.” – Susan Marais, AgriOrbit