Chicken producer Astral says it is costing the group R1m a day to keep generators running during load-shedding, warning that it could be forced into layoffs if the intensifying power outages continue unabated.
Astral, the country’s biggest producer of the staple protein, is the latest company to outline the rising cost of doing business in SA. The owner of the Goldi Chicken, County Fair and Festive brands flagged a hefty 90% drop in half-year profits, citing load-shedding, which prompted it to hike selling prices in 2022 to partially recover input costs.
Speaking to Business Day after the group published an “unsettling” trading update on Wednesday, CEO Chris Schutte said the company was fighting on multiple fronts.
“We’ve had to redirect some of our capital expenditure plan for investment in growth. We had to stop that and now channel that north of R200m into the buying and installation of generators and spare water capacity,” Schutte said. “To run those generators costs us R30m per month — that’s straight off the bottom line.”
The latest market update is a stark contrast to its previous update in which the group reported its second-best performance period in its history.
“We need to stop that bleeding and that you can unfortunately only do with recovering your input costs with a price increase,” said Schutte.
At the heart of the matter is that the group is contending with the highest raw materials input costs in its history. They make up 70% of the total cost to produce a live broiler, particularly with yellow maize peaking at R5,300 a tonne.
The situation is compounded by power outages. “Now you produce this chicken at a high cost, but you can’t slaughter or process it, so there is a backlog,” said Schutte. “You send the birds back to the farm and you have to feed them for longer with your most expensive feed in history.”
The rising costs mean the cost of producing a chicken exceeds the selling price by “at least” R2/kg, according to Astral.
In December Astral chair Theuns Eloff remarked that the business in SA is facing an existential crisis because of the country’s rapidly deteriorating power and water infrastructure.
Schutte echoed the sentiment saying if there is no relief from Eskom’s point of view, the group would not continue backing up birds into the system and feeding them at a loss, but would rather have to make a more permanent adjustment to its production planning by right sizing to align with Eskom’s ability. This would mean job losses throughout the supply chain.
“If we have to right-size it won’t just affect Astral, it affects all of our input suppliers, customers, the economy and Sars.”
Astral has 13,000 employees and produces and slaughters 6.9-million chickens a week.
Schutte said Astral had made multiple attempts to keep the industry intact. Among the suggestions it has put forward is to keep chicken producers on permanent stage 2 load-shedding to allow them to plan and implement other measures.
Update: January 25 2023
This story has been updated with new information.
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