Chicken producers: under pressure

28 Nov 2014
Financial Mail
Nick Hedley

THE CYCLICAL poultry industry, which has been under pressure from cheap imports and rising feed costs, is experiencing "longer and deeper" cycles than before, says SA Poultry Association CE Kevin Lovell.

On Monday Country Bird Holdings reported an operating loss of R30,1m for its half-year to December - from a R77,5m operating profit previously.

Like other poultry producers, Country Bird flagged escalating feed raw material costs and high import levels as reasons for the weak performance.

Lovell says that for a sustained recovery the industry needs stable levels of imports at fairly stable prices, because then local producers can plan . At the moment imports are coming in "at prices which are way below cost of production, and they are also hugely volatile".

The sector gained some relief from cheap imports last year in the form of tariff protection, though this did not apply to European imports because of free trade agreements.

Lovell says the International Trade Administration Commission of SA will be going to Europe at the end of this month to verify the information provided by European producers.

"We think it realistic to expect a preliminary determination by the end of May."

This would allow the industry interim protection from cheap European imports, which the association views as below-cost dumping.

Lovell is also hopeful that the price of maize - a key input feed cost - will come down with the next harvest. Maize and other import costs have been at record highs due to the weak rand and local shortages of the crop. "In December, we were paying R1000/t more for maize than our main competitors in Brazil and the US," he says.

Rainbow Chicken, which operates as a division of RCL Foods, also experienced difficult trading conditions as high EU import volumes and feed costs suppressed margins. Operating profit improved to R98m in the six months to December from a R3m loss in the 2012 interim period at an operating margin of 2,2%.