CHRIS SCHUTTE ON ASTRAL’S RECORD RESULTS
South Africa’s largest buyer of yellow maize is bracing itself for higher prices as a crippling national drought affects local production. Astral Foods nevertheless posted a record profit in its most recent financial year. finweek spoke to CEO Chris Schut
poultry and animal feeds producer Astral Foods is hard-pressed to duplicate its record financial results for the recent year as a myriad macroeconomic headwinds weigh on its customer base and a crippling national drought pushes up future maize prices. Consumers, especially low-earning individuals, are faced with increasing unemployment, a struggling mining industry and lower disposable income, according to Chris Schutte, CEO of Astral Foods.
“Things look different than in the previous financial year,” he says. “The consumer is in a difficult position.”
South Africa’s GDP shrank by 1.3% in the three months ending June quarter-on-quarter annualised. Unemployment rose to 25.5% in the third quarter of the year, even as over 700 000 people found employment, a testimony that the economy can’t absorb the about 2.2m discouraged jobseekers, according to Stats SA’s latest Labour Force Survey.
Astral consists of three units, namely poultry, animal feeds and its business in the rest of Africa.
The volume of broilers sold rose 12.8%, or 550 000 birds per week, as part of a contract with Quantum Foods which saw some of its operations included into Astral’s Western Cape unit, according to Schutte. Another reason for the jump in volumes was the fact that Astral didn’t cut back on production amid increased imports.
A third tailwind boosted volumes in the form of better production results, mainly due to lower poultry disease incidences, Schutte explains. Many smaller poultry producers, who suffered as a result of cheap imports coming into the market, left the industry, which benefitted the country’s poultry disease situation.
The feed division’s sales rose 13.3% to R6.2bn while operating profit jumped to R423m from R354m in the corresponding prior year, according to the company’s financial statements.
We will probably have to cut back on production if the Agoa agreement falls into place and there is additional poultry on the market.
“The volumes for the coming year will probably be the same or even a little lower,” says Schutte. “We will probably have to cut back on production if the Agoa [African Growth and Opportunity Act] agreement falls into place and there is additional poultry on the market.”
South Africa’s poultry industry fought a condition to the inclusion of the country in the recently renewed Agoa, which would see anti-dumping tariffs scrapped on 65 000 tons of bone-in chicken imports from the US.
The poultry division’s sales rose by 25.5% to R8.7bn in the 12 months ending September, while operating profit jumped to R661m from R104m in the corresponding period a year earlier, according to the company’s financial statements.
The feeds division also received a boost in volumes with a 12.4% increase from the prior year. This was driven by the lapse of a 10-year contractual obligation with Afgri’s Kinross unit to buy feeds, Schutte explains. The increased volumes were manufactured at Astral’s new Standerton mill. The mill produces 15 000 tons of animal feed per month, according to him.
The division’s sales rose 13.3% to R6.2bn while operating profit jumped to R423m from R354m in the corresponding prior year, according to the company’s financial statements.
Impact of the drought
In the meantime, the prospects for SA’s maize crop for next year are dire as rains in the summer production areas are late due to the El Niño weather phenomenon. This phenomenon holds that higher measured upper ocean temperatures in the Pacific Ocean impacts rainfall patterns and summer temperatures in other parts of the world, including SA.
Astral produces around 1.45m tons of animal feed each year, says Schutte. Maize comprises between 60% and 65% of the feed mix and it is known that Astral is the largest buyer of yellow maize in SA, he says. Yellow maize is mainly used for animal feed whereas people eat white maize as a staple food.
“We use between 720 000 and 730 000 tons of yellow maize a year,” Schutte says. South Africa’s maize crop declined to 9.9m tons in the previous harvest from a record 14.25m tons the prior season, according to the Crop Estimates Committee (CEC).
Farmers indicated that they intend to reduce the area planted with yellow maize by 6% this season and white maize by 1.8%, according to the CEC’s first survey on intentions to plant. Limited carry-over stock from the previous harvest and a similar crop this season would force the country to import maize from abroad.
The impact of the “strong El Niño” and farmers’ ability to plant maize at the right time on the right land will impact animal feed prices, Schutte says.
“We are at an advantage to be in a position where we have three feed mills at the coast,” Schutte explains. These are located near Paarl, Port Elizabeth and Pietermaritzburg.
“When you talk about importing, you need to look at harbour fees. At the moment Cape Town is very effective to import through,” he adds.
Astral has a relatively big poultry business in the Western Cape and a feed mill near Paarl, Schutte says. Importing maize to the Paarl mill makes sense for the company, according to him. It made financial sense once or twice to import maize to the Pietermaritzburg mill, he says.
“If there is a dramatically smaller harvest and we need to import more constantly, we’re in the position to import maize to the coast,” he says. This will cut the associated transport costs to ship the maize inland, according to him.
In the meantime, Schutte foresees an increasing consolidation of the local poultry market as more cheap chicken imports make their way into SA. Some 12 mediumsized poultry producers, typically family-owned businesses, mothballed their operations over the past year.
The issue of dumping of so-called brown meat in SA has seen trade standoffs between SA and some of its largest trading partners, notably the EU and US. Consumers in those developed markets prefer the breast portion of a chicken, so-called white meat, and the rest of the chicken portions are then exported to any country in the world that has an appetite for it. SA is one of those markets.
The import of chicken portions, despite high antidumping tariffs and a weak rand, reached a record high in July, according to Schutte.
“This is classical dumping,” he says.
Chris Schutte CEO of Astral Foods