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South Africa’s leading integrated poultry business, Astral Foods, expects its broiler division to post losses of between R300 and R400 million for the first half of its current financial year.
“On average we are making a loss of R2/kg on all of our poultry products as a direct result of load shedding and other service delivery failures [such as water provision],” Chris Schutte, CEO of Astral Foods, said during a telephonic interview. The main reasons for these losses are load shedding and high feed prices.
Schutte still expects that the group should show a slight profit for the six months ending March 2023, but the company is anticipating a major loss for its broiler division. Forecasts indicates that earnings per share for the six months ending 31 March 2023, could decrease by 90%, to R1,42/share (31 March 2022: R14,56).
Currently, the JSE-listed company’s generators are burning though R30 million worth
of diesel per month to keep its operations going during power outages.
Generator costs
“This isn’t load shedding, it’s power failures. Load shedding refers to a planned strategy, but it is impossible to plan under these circumstances,” Schutte said. “If we knew when to expect load shedding it would be one thing, but the scheduling keeps changing.”
Schutte said Astral was forced to slaughter 12 million broilers fewer during the first quarter of 2023 alone due to power outages.
Abnormal costs have been incurred on a backlog in the broiler slaughter programme, that has resulted in older and heavier birds consuming higher levels of feed. Additionally, excessive processing costs are being incurred as additional shifts are being implemented to address the substantial backlog in the Group’s integrated broiler supply chain. The larger bird size and continued load shedding disruptions have compromised the Group’s poultry product offering.
“Supermarkets are placing immense pressure on us to keep prices low, but at some point, something will have to give. We’re not talking about unfair profits, but a business needs to recuperate its operational costs. That is only fair,” Schutte said.
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Expansions halted
The current situation has forced Astral to put capital expenditure commitments amounting to R737 million on hold given the current adverse market conditions. Of this money R400 million has now been reallocated towards backup electricity generation solutions to reduce the adverse impact of load shedding.
“For the first time in South Africa, food security is now under threat due to agriculture’s reliance on basic infrastructure and services, which are failing,” Schutte said. “A couple of years ago, Astral was the first poultry producer to propose that chicken be categorised as a zero-rated VAT product. However, this was declined by Government. Should this be revisited, Astral will once again support such an initiative.”
Astral has issued formal statement in which it warns that if prevailing market and operational conditions due to load shedding were to continue, it could lead to Astral resizing its business in the short term, resulting in job losses throughout the supply chain. – Susan Marais, AgriOrbit
