Food pro­duc­ers hard­est hit

Finweek English Edition - - MARKETPLACE SIMON SAYS -

South Africa is ex­pe­ri­enc­ing a se­ri­ous drought and un­less we get some heavy rains soon it’s only go­ing to get worse. The im­pact of this is go­ing to be felt by a num­ber of listed com­pa­nies, most ob­vi­ously those that have maize as an in­put. In this case, food pro­duc­ers are in­volved – es­pe­cially those in the bread and poul­try sec­tors. On the chicken side, As­tral won’t suf­fer as much be­cause it also sells chicken feed, which will make mar­gins, but it won’t off­set the cost in­creases on the chicken pro­duc­tion side. One op­tion for the poul­try com­pa­nies is to slaugh­ter a few days ear­lier to save on feed costs, but this re­duces bird size so while it may help, it doesn’t solve the prob­lem. Oth­ers that will be hit are the food re­tail­ers. What we of­ten see in this case is that re­tail­ers ab­sorb some of the up­ward price pres­sure and by do­ing so they re­duce their mar­gins. So re­tail­ers will be hurt a bit, but food pro­duc­ers will suf­fer the most, as maize is a sig­nif­i­cant in­put in their busi­nesses.

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