Poultry woes spark Rainbow rethink
Imported competition compels top chicken farmer to diversify
CHEAP poultry imports from the EU, US and Brazil, compounded by a lack of support from the government, are forcing one of South Africa’s oldest and biggest chicken producers to rethink its business, says the company.
Over the past five years, the South Africa poultry industry has experienced a massive increase in chicken imports, especially in the quick-frozen category, with more than 480 000 tons of poultry shipped into the country last year.
The situation has been exacerbated by the latest trade agreement through the US’s African Growth and Opportunity Act, in terms of which 65 000 tons of chicken will reach South Africa without anti-dumping duty.
RCL Foods, which owns Rainbow Chicken — whose operations date from 1960 — said the strain from cheap imports was unfair on its shareholders and had forced it to reconsider its business model.
“We are not about to exit the chicken business. What we are saying is that we cannot continue to have a business where we have turnover of about R8-billion and employ about 7 000 and only make about R100million . . . it is not fair on shareholders who have been limping along with us over the past five years,” RCL CEO Miles Dally said this week.
Over the past five years, RCL has seen its stock price fall more than 10% — over a period when the JSE All Share index has gained close to 70%.
The shares of rival Astral Foods, which also has a chicken business, gained under 8% in the same period.
The company has most recently transformed itself from a chicken business into a food group, operating a sugar business and a food logistics division.
The group released its yearend results this week, reporting an 11.9% decrease in headline earnings from continuing operations for the year to June to R849.7-million. Headline earnings per share were down 12.2%.
Excluding the chicken business, RCL Foods’ consumer division achieved a 19.9% increase in earnings before interest, taxes, depreciation and amortisation to R543.6-million at the increasing margin of 12%. Including the division, earnings before taxes and other deductions fell by 19.2% to R701.7-million.
Dally said the South African poultry industry remained highly oversupplied.
He said chicken exporters globally were running out of markets as Russia and China were not accepting their products.
“South Africa had the single highest chicken imports at 30 000 last month. This shows that we have become perfect for dumping.”
RCL has deliberately reduced bird volumes by more than halving the production of its quickfrozen chicken pieces from 600 tons to 260 tons a day.
“Without this action, the oversupply in the market would be even greater and the impact on profitability more severe.”
For now, RCL Foods will hang on to its chicken business, but will continue to think of ways of making this portfolio profitable, such as increasing its focus on servicing quick-service restaurants such as KFC and Nando’s.
“In the old days, for every 100 birds produced, only 26 were the right weight range for the quickservice restaurant and the rest went to an IQF [quick-frozen] offering.
“So what we have been working on is changing our agricultural practices so that we can get more chicken into quickservice restaurants. Now 42 of our 100 birds go to the restaurants,” said Dally. PULLETS FLYING: Hundreds of thousands of tons of chicken will reach South Africa from the US, EU and South America this year
South African Poultry Association CEO Kevin Lovell said the country’s chicken producers could produce enough for the local market.
“Chicken imports have rocketed. From the year-to-date figures, South Africa will be importing between 480 000 tons and 500 000 tons of poultry products this year. This is unbelievably huge.”
Lovell said the industry would continue to lose jobs if nothing was done.
In response to cheap imports, rising costs of animal feed because of drought conditions and a struggling South African con- sumer, Astral last month said it would consider permanent production cutbacks.
The woes of South Africa’s chicken industry are similar to those besetting the steel and cement sectors, which have faced a flood of supply from China and other Asian countries.
South Africa has anti-dumping duties on poultry imports from three EU countries — Germany, the Netherlands and the UK.
In February this year, Minister of Economic Development
The rate of chicken imports shows we have become perfect for dumping
Ebrahim Patel instructed the International Trade Administration Commission of South Africa to investigate and evaluate an application by the poultry association for the imposition of safeguard measures on the trade between the EU and South Africa on frozen bone-in portions of poultry.
The relevant clause of the trade agreement between the two markets provides for the immediate search for an appropriate solution should any imported product from any party to the agreement cause or threaten to cause a serious disturbance to the markets in which they participate. Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za