Feed and poultry producer Quantum says it had to cull 420,000 chickens in April in one of the first outbreaks of avian flu this season, with the likely result that the cost to provide eggs to the Western Cape will rise.
A nearby competitor was also affected, it said. Quantum, the only JSE-listed egg producer, produces the Nulaid brand nationally. The latest outbreak of the highly pathogenic avian influenza (HPAI) was first detected at the Lemoenkloof layer farm near Malmesbury in the second half of April.
Quantum said culling the chickens and destroying eggs and feed cost R34m. Outbreaks of bird flu have been extremely common in the US, South America, Europe and Asia in the past year. The airborne virus is spread by wild birds such as ducks.
Anthony Clark, Smalltalkdaily analyst who covers the food industry, said if SA experienced a cold, wet winter, more outbreaks of avian flu were likely due to its prevalence in Europe in the past year. Biosecurity measures that most SA chicken farms put in place had mitigated the frequency of outbreaks, Clark said. The situation was worse in 2017 and 2018 when the disease first landed on local shores.
“We will not go back to horrendous outbreaks of five and six years ago that saw millions of birds culled in SA,” he said. But as an airborne disease spread by wild birds, total protection against it was impossible. “This is not a Quantum Foods problem, but an industry problem due to its prevalence,” he said.
Asked whether the culling of layer hens would affect egg prices in the Western Cape, Clark said egg prices had been rising in the past three to four months to levels last seen at end-2022. This was due to the cost of diesel and use of generators at farms and the rising electricity price. However, feed input costs such as that for maize and soya had dropped since late last year, benefiting chicken and egg farmers.
Cash-strapped consumers limit how much prices can rise as, if food becomes too expensive, the volumes sold will drop. Producers are thus cautious about enacting increases.
Egg and chicken producers have been experiencing a torrid time with raw material feed costs rising in 2022 after Russia’s invasion of Ukraine, drought in South America, fewer people buying eggs because of tough economic conditions, and the cost of running generators.
Chickens need to be kept cool, while eggs are heated and power is needed in the production of feed. Frozen chicken imported cheaply from Brazil also adds competition to the industry and keeps local chicken prices down.
SA’s largest chicken producer, Astral, said in January it was losing money on its chickens as it was unable to fully recover costs.
In a trading statement issued on Tuesday, Quantum said it did not expect results for the half year to end-March to be as poor as previously feared. In February it forecast a loss, but it now expected a marginal profit for the period.
It expected headline earnings per share (Heps), a frequently used measure of profit in SA, to drop 76%-87% to 2c-3.8c for the interim period. The improvement comes as the company reported operational efficiencies and better sales in February and March.
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