Egg prices must rise significantly for the industry to remain sustainable and recoup the higher cost of chicken feed, according to Quantum Foods CEO Hendrik Lourens.
He was speaking at the feed and poultry company’s half-year results to end-March in which the company’s Nulaid egg division posted a R78.5m loss, having had a R12.6m loss in the first half of 2022.
The group’s egg division reported a loss of R78.5m for the six months, up from a loss of R12.6m in the first half of 2022.
Quantum’s interim profit plunged more than four-fifths year on year to R5.7m after what it described as its “most challenging” since listing on the JSE in 2014.
Gross profit was up almost a fifth to R593.6m, indicating the severe effect of higher input costs including feed, which rose steadily over the past three years. That places increasing strain on poultry companies as they cannot pass much of the extra cost on to the 20-million or so SA consumer, who will seek alternatives if egg prices rise too much.
Maize and wheat prices soared since the war began in Ukraine, a major grain-producing nation. Drought in major soya producers Brazil and Argentina places more pressure on feed prices in the poultry sector.
Quantum’s feed costs in its egg division surged 30% during the six-month period. Egg prices, meanwhile, rose 7.5% in the same period.
Quantum, the JSE’s only listed egg producer, said many smaller producers were shutting down as costs soar and sales fall.
In April, SA Poultry Association CEO Abongile Balarane said “though eggs remain one of the most affordable animal protein sources, it is becoming increasingly more expensive for farmers to produce this highly versatile and nutritious protein source”.
The poultry industry’s woes were worsened by load-shedding and the cost of backup generators in SA needed to maintain optimal temperatures for eggs, produce feed at the mills, and slaughter chickens.
Astral, SA’s largest chicken producer, last week reported a R3.20 loss per broiler chicken as it could not recover its costs in the selling price.
On top of rocketing input costs, chicken producers now face the threat of bird flu outbreaks, which are more common in winter.
Quantum warned of the disastrous effect of the highly pathogenic avian influenza (HPAI) as 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.
Bird flu was first detected at the Lemoenkloof layer farm near Malmesbury in the second half of April.
According to the company, culling the chickens and destroying eggs and feed cost R34m and will affect its full-year results.
“HPAI has a devastating effect on affected farms, with all birds required to be culled immediately and the farm being required to remain empty for a considerable period of time before it can be repopulated in order for production to resume. This results in major uncertainty for the poultry industry, which could severely impact earnings,” Quantum said.
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.
Quantum’s interim operating profit, generated from the company’s core operations, more than halved to R14.6m.
By revenue, Quantum’s largest segment is its animal feeds business, which generated almost half of group sales, followed by the farming segment with 25% and eggs (about 20%).
Headline earnings per share, which strips out exceptional and one-off items, fell 81.6% to 2.9c. Earnings per share were down by a similar margin, also to 2.9c.
No interim dividend was declared.
The group reported a loss at its Africa division, which houses a chicken, egg and feed business in Uganda and Zambia, but Lourens was confident about its prospects.
“Zambia has been a very good investment for us, particularly the egg business,” said Lourens.
“Zambia is a matter of really staying the course. I think we actually have to look at investing more. I’m very positive about Zambia, from a political perspective. It’s a very stable country. It has far better supply of electricity and energy than many other countries.”
Lourens said that despite tough times in Uganda, the firm’s analysis showed doing business in the country was a good investment.
“We’ve had really, really, difficult times, but as it goes in agriculture, difficult times are often followed by the good times.”
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