Public Investment Corporation-owned Daybreak has had its fair share of scandals and is selling chicken and eggs in an industry under severe pressure from load-shedding and high feed costs. Business Day spoke to transitional officer Richard Manzini about managing the company in the wake of SA’s biggest bird flu outbreak.
Daybreak has not been profitable for some time. When do you think this will change?
At the March 2023 financial year end, we reported a loss. We are currently tracking profitability, but at very low levels. We will probably break even in the 2024 financial year.
The costs affecting us are primarily the avian influenza outbreak and the continued effect of load-shedding. Without those, the business would definitely be profitable.
We spend about R7m or R8m a month on coal and diesel for generators, close to R100m a year. Essentially, our profit has been wiped out. At this stage this is not a cost that we’re able to really pass on to the customer.
How did you help the market when bird flu hadn’t affected your farms but affected others?
We didn’t get hit [initially] when everyone else had bird flu outbreaks so we were supporting the industry. We were selling day-old chicks. We sold over 500,000 day-old chicks to our competitors to help them with production. We did it to help keep the industry sustainable.
Has Daybreak you been selling chicken below cost?
The industry took a lot of frozen chicken and put it into the market at a price we couldn’t defend. Everyone is driving volume to get cash [and selling below cost]. We’re not the only ones doing it. We couldn’t actually match the price of Astral and RCL. We lost sales volumes because of that.
Do you think chicken prices will rise due to the avian influenza outbreak?
We definitely have a supply shortage. With that in mind, we expect price increases. [However], what we’ve seen with the big fast-moving consumer goods players is that they’re all building up stock. They all are trying to demand as much as possible from all of us so they can store it and wait for the price increase to come in before selling it.
Everyone is reluctant to just sell as much chicken as we can to the retailers, because we know we’ll lose out on the margin. They will lock us in at the current price and then pass on the increase to consumers. The industry is talking to retailers to ask them to at least increase the price they pay us now so we can all benefit from increases together.
How are the conversations about price increases going?
We have had discussions over the past two weeks on exactly that. They are open to the reality. We unfortunately face no choice but to lift prices. The poultry industry is completely unprofitable, and it’s not sustainable. I can’t be producing a chicken that I’m not selling at the right price. And regardless of how efficiently I do it, I still have to contend with no electricity and diesel costs that I’m not passing on to the consumer.
Is the industry concerned the government is looking at a rebate to reduce the tariffs on imported chicken and lower imported chicken costs?
We hope that the government will give us a good sense on whether they plan to relax import duties. We need to remain price-competitive. [Lower import prices and fewer import duties will put the locally produced prices under pressure. However], a price increase is something the local industry would welcome as it would allow it to offset some losses from the past couple of months.
Daybreak has had its fair share of corruption scandals. How are you avoiding this in future?
We have gone a long way in the past couple of months strengthening internal controls. We’ve just had a very successful AGM [annual general meeting]. We are appointing a new external auditor, Nexia.
There were delays paying feed producers earlier in the year, as feed prices rose?
Daybreak was managing the [feed cost] crisis without overdraft facilities, which is something that is not spoken about in the market much. We were no different to the rest of the poultry industry. They are fortunate they could meet the payment terms simply because they had an overdraft facility. Everyone is tapping into their working capital solutions to weather the storm.
Do you not need bank assistance?
We are fixing it. We are becoming bankable. We have banks that are looking at developing a working capital solution for us. We are very close to proper corporate banking solutions that will help us to match when our payments come in and go out.
What kind of assistance does the government need to give the industry in the wake of this devastating avian flu outbreak?
We need to export fertilised eggs to hatch into chickens which we would slaughter around December time — when there is expected to be a shortage. I think most of our hatcheries in the country are licensed for exporting. With the assistance of the government, we should be able to change those to import licences.
There have been egg shortages. I think in terms of chicken we’ve been slightly proactive, as we foresee the shortage coming and are trying to solve for that shortage before it actually happens.
Correction: October 4 2023
An earlier version of this story referred to Richard Manzini as Daybreak CEO when he is in fact a director who leads the transitional board oversight office.
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