DROUGHT IS DRIV­ING COSTS

Com­pa­nies such as As­tral Foods and Sov­er­eign Food are strug­gling un­der the weight of higher feed costs and in­creased poul­try im­ports

CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

The drought in the coun­try is hav­ing a se­vere ef­fect on lo­cal food com­pa­nies by in­creas­ing their costs, while poul­try com­pa­nies’ prof­its are evap­o­rat­ing amid sig­nif­i­cant poul­try im­ports. Ma­jor lo­cal poul­try pro­ducer As­tral Foods is bat­tling high feed costs amid the dev­as­tat­ing drought, which is knock­ing its prof­its. At the same time, its sell­ing prices are un­der pres­sure due to a record amount of poul­try im­ports.

As­tral said this week: “On ac­count of the se­vere drought af­fect­ing the coun­try, poul­try feed prices in­creased ... This re­sulted in a higher feed­ing cost driv­ing the pro­duc­tion cost of poul­try up, which would not be re­cov­ered through the sell­ing price to the end user.

“To­tal poul­try im­ports reached record lev­els dur­ing the re­port­ing pe­riod, with a peak at 57 673 tons in March 2016. South Africa is of­ten re­ferred to as the ‘least pro­tected mar­ket’ around the globe due to an ab­sence of quan­ti­ta­tive re­stric­tions, and the lack of en­force­ment of san­i­tary and phy­tosan­i­tary mea­sures on poul­try im­ports,” the com­pany said.

“A sig­nif­i­cant in­crease in im­ports of bone-in por­tions from the EU, par­tic­u­larly from the Nether­lands, has been re­ported. This sit­u­a­tion, notwith­stand­ing the per­ma­nent EU an­tidump­ing du­ties im­posed on Ger­many, the Nether­lands and the UK last year, and a sig­nif­i­cant de­pre­ci­a­tion in the South African cur­rency, con­firms the clas­sic dump­ing of poul­try prod­ucts in South Africa.”

AGOA

“The full ef­fect of poul­try im­ports un­der the African Growth and Op­por­tu­ni­ties Act [Agoa] agree­ment has not yet ma­te­ri­alised, as im­ports for the nine months end­ing Septem­ber 2016 equalled 33% of the quota that could be im­ported ex­empt of the US anti-dump­ing duty,” the com­pany said.

Sov­er­eign Food, an­other lo­cal poul­try maker, agreed with As­tral’s com­ments on the ef­fect of Agoa.

“The vol­ume of US bone-in prod­ucts im­ports un­der the Agoa agree­ment has been muted and, in the eight months to Au­gust 2016, about 15 500 tons were im­ported,” Sov­er­eign said this week.

On the other hand, Sov­er­eign said: “Im­ports of bone-in prod­ucts, from coun­tries other than the US, have in­creased and, in the eight months to Au­gust 2016, there was a 23% in­crease com­pared with the same pe­riod last year.”

Quan­tum Foods, the egg, broiler and an­i­mal feed busi­ness, this week said it had been a “very chal­leng­ing year for the poul­try in­dus­try”.

PROTESTS

The Food and Al­lied Work­ers’ Union (Fawu) staged a series of protest marches this week to try to de­fend lo­cal jobs and halt the dump­ing of cheap chicken meat.

Fawu staged protests out­side the EU of­fices in Pre­to­ria and the union will march on Par­lia­ment in Cape Town and then on KwaZu­luNatal’s Pi­eter­mar­itzburg leg­is­la­ture next week.

Sov­er­eign this week suf­fered a loss as higher feed costs and lower poul­try prices due to lo­cal over­sup­ply con­di­tions knocked the com­pany for six.

How­ever, Sov­er­eign said that, look­ing ahead, lo­cal maize and soya bean crops were ex­pected to be sig­nif­i­cantly higher than in the pre­vi­ous year, which would re­sult in a sig­nif­i­cant drop in feed costs.

Pi­o­neer Foods, which owns brands such as Sasko, Weet-Bix and Liqui-Fruit, this week said it ex­pected that, given the fore­casted La Niña weather event, there was a high prob­a­bil­ity of in­creased maize plant­ings.

Gov­ern­ment’s crop es­ti­mat­ing com­mit­tee this week fore­cast that farm­ers could next year in­crease their maize plant­ings by 27% to al­most 2.5 mil­lion hectares.

Pi­o­neer re­ported that it had been hit by the nearly R1 600-a-ton hike in the wheat duty, as well as the drought and con­sumer weak­ness.

“The busi­ness had to con­tend with the se­vere im­pact of the drought on maize and other crops, an ex­po­nen­tial in­crease in the wheat im­port duty, the volatil­ity of the rand and the re­sul­tant cost push in a weak con­sumer en­vi­ron­ment,” Pi­o­neer said.

“Ex­port rev­enue into the rest of Africa came un­der pres­sure amid se­vere cur­rency de­val­u­a­tion to the rand, and the de­te­ri­o­ra­tion of in-coun­try con­sumer spend­ing power as a con­se­quence,” the com­pany said.

GREATER PRES­SURE

Lawrence Mac­Dougall, the CEO of Tiger Brands, said that, as con­sumers came un­der greater pres­sure, the com­pet­i­tive en­vi­ron­ment would be­come even tougher.

Mac­Dougall, who has been in the job since May, said he had launched a strate­gic re­view at Tiger Brands since join­ing the com­pany.

The strate­gic re­view is aimed at re­ju­ve­nat­ing the com­pany’s do­mes­tic busi­ness, es­tab­lish­ing a strong and prof­itable growth in the rest of Africa, and re­struc­tur­ing the group’s cost base.

Mac­Dougall said the re­sults of the strate­gic re­view would be re­leased in April or May next year.

He said that he was look­ing to find the sweet spot “be­tween growth, cost and ca­pa­bil­ity”.

In re­sponse to a ques­tion about whether Tiger Brands would stream­line its busi­ness or grow by ac­qui­si­tions, Mac­Dougall said that Tiger Brands was a “growth com­pany”, adding that the group could not “shrink to great­ness”.

The group would like to grow in all its seg­ments and within a broader ge­og­ra­phy.

“There are great op­por­tu­ni­ties to ex­pand,” Mac­Dougall said.

He said that the strate­gic re­view project was “fully staffed” with many se­nior man­agers and ex­ec­u­tives in­volved in the re­view. Over­all, about 200 peo­ple were in­volved in the re­view, he added.

“Ex­e­cut­ing any strat­egy suc­cess­fully is the big­gest chal­lenge ... If you haven’t done the change man­age­ment upfront, the chances of your ex­e­cu­tion are slim,” Mac­Dougall said.

Part of the re­view was to com­pare Tiger Brands with its lo­cal and in­ter­na­tional food sec­tor peers, he added.

Out­side con­sul­tants were in­volved in the re­view, but Mac­Dougall de­clined to name which com­pa­nies were in­volved.

He also de­clined to in­di­cate the amount that Tiger Brands had bud­geted to spend on the strate­gic re­view.

Ron Klipin, a se­nior an­a­lyst at Cratos Cap­i­tal, said that Tiger’s ma­jor strengths were its brands that held a num­ber of first and sec­ond po­si­tions in their cat­e­gories.

“An­other ma­jor pos­i­tive is the strong bal­ance sheet,” Klipin added.

“It also ap­pears as if part of the strat­egy go­ing for­ward is to grow the com­pany via ac­qui­si­tions, but man­age­ment were coy about de­tails re­gard­ing fu­ture plans.

“Tiger Brands must be­come more nim­ble in claw­ing back mar­ket share from com­peti­tors such as Rhodes Foods and other com­peti­tors,” he said.

HUNT­ING FOR AC­QUI­SI­TIONS

One of the most vi­brant com­pa­nies in the food sec­tor is Rhodes Food Group, which is on the look­out for ac­qui­si­tions af­ter buy­ing eight groups for about R900 mil­lion since April last year.

The com­pany, which listed on the JSE in 2014, would com­ple­ment or­ganic growth with strate­gic ac­qui­si­tions, Bruce Hen­der­son, the CEO of Rhodes Food Group added.

This week, the com­pany raised more than R660 mil­lion by is­su­ing shares for cash to fund cap­i­tal ex­pen­di­ture, ac­qui­si­tions and cut debt.

The com­pany is also crank­ing up its cap­i­tal ex­pen­di­ture to R250 mil­lion in its com­ing year, from R229 mil­lion in the pre­vi­ous year.

Hen­der­son said the group had a num­ber one mar­ket share for its jams, canned fruit, and canned meats and meals units.

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