Chicken biz squawks at land debate
Poultry producer says it is wary of investing amid ‘uncertainty’
● Chris Schutte, the CEO of South Africa’s largest poultry producer, Astral Foods, says plans to reinvest in the business were put on hold after President Cyril Ramaphosa said the government supported expropriation without compensation.
“We were about to release some capital for reinvestment. But now I have to discuss it with my board again and say: ‘There is a risk to our shareholders, what should we do?’ ”
In spite of severe challenges facing the industry, Astral almost doubled its headline earnings to R735-million last year. It announced last week that it expected headline profit to jump by 410% in the six months to end-March 2018.
Schutte says he shared the euphoria when Ramaphosa was sworn in and made positive changes to the cabinet.
“Two days later you get this rude awakening of expropriation without compensation.”
This should be a big concern to everybody in South Africa, “not just the guy who might lose half a farm here or there”, he says.
“It’s going to cause a massive rethink by foreign and local investors.”
Whether it actually happens or not, the uncertainty is “extremely damaging”, he says.
“We hope the government will very soon come out with a clear statement about what they mean. In the meantime I think it’s havoc in the investment market.”
Astral shareholders have been contacting the company “almost on an hourly basis” asking if they’re going to lose land.
“We’ve seen keen interest from international investors buying into primary agriculture companies like Astral.” From the feedback he’s received, he says he believes the government’s position on expropriation without compensation “is going to come up” when they review their risk portfolios.
“Investors need long-term safeguards, but this has all gone now.”
Haven’t the ANC and Ramaphosa been telling people not to panic?
“We’ve seen a bit of an egg dance, but people don’t listen to that. They listen to the initial intent of a new government, and that is that ‘we will take land without compensation’.”
He says he doesn’t know how Ramaphosa can tell investors, as he did at the World Economic Forum in Davos, that South Africa is “open for business”, and then push a policy that in effect slams the door in their face.
“That’s a bit of a mixed signal. It creates uncertainty, and we should be afraid of uncertainty. It’s the last thing you want for a long-term investment.”
He hopes, “as a patriot”, there will be “some remedy to this scenario” because Astral is heavily invested in agricultural land. It owns 183 farms with feed mills, abattoirs and factories.
“Foreign investors can still withhold capital for investment. I can’t pick up and run. All I can do is decide: ‘Do I expand or not?’
“That is something we will have to review very seriously now.”
He supports the need for land redress but says there is a credible process in place agreed to by business and government, and it should be continued. The failure of government departments to implement it needs to be addressed, he says.
“It seems to me the motivation for expro-
We hope the government will come out with a clear statement about what they mean
priation without compensation is a populist and political one, not an economic one.”
Schutte, 57, who started in the industry 36 years ago as a shed worker, says dumping, drought and dysfunctional municipalities remain threats to the local industry.
Chicken importers accuse local poultry producers of exaggerating the impact of cheap imports so that the government will increase tariffs and protect them from competition. Thirteen producers forced to sell at a loss have closed down over the past four years, says Schutte. “That is fact.”
Others, including Rainbow, have cut a big chunk of their production. Astral has survived by focusing on the things it can control, he says. “And we’ve always been afraid of debt. This is a risky business. We were able to go into the worst of it with a fairly strong balance sheet and that has kept us afloat for a bit longer than the other guys.”
Importers say cheap imports benefit consumers.
“We’ve done many surveys, and we never see chicken being sold to the end user or consumer cheaper, because that margin gets eaten up in the system.” And, he adds: “When you no longer have a local industry, prices start to go up.”
How did he double headline earnings last year if dumping had such a crippling effect?
That was off an extremely low base following a “very, very bad period”, he says, and the result of feed prices falling when a long drought ended in the prime maize- and soya-producing areas in Mpumalanga, where Astral’s poultry production and processing business is based.
Some 74% of the input costs of local poultry companies is feed, and the drought meant local input costs more than doubled. The threat of that happening again is “always there”, he says.
The drought hasn’t ended in the Western Cape, where the company has 45 farms. But they’re “OK” there, he says. They’ve been implementing measures — cutting water use by 40% and digging boreholes — for the past two years “because we knew that this was going to happen”. Day Zero won’t disrupt production.
Surviving in an environment of dysfunctional local government is a far greater challenge, he says.
“There are huge problems at municipal level. Maybe the lights are on now and there’s a bit of water in the taps, but we’ve done some audits and there is a real threat in many municipalities of a collapse. This is a serious discussion point at all our meetings.”
Astral had to spend to reduce dependence on municipalities for services.
“We’re actually paying a double tax,” he says. “That’s money we could have spent much more effectively for the benefit of the country by reinvesting it in our business and creating more jobs.”