Business Day interviewed Astral CEO Chris Schutte about the Competition Commission’s market inquiry into chicken which led him to say the poultry sector is under attack.
There have been previous concerns expressed by the Competition Commission about the price of food and suggestions local chicken farmers are not efficient?
The cost drivers in producing chicken are not because of us. We are efficient farmers. We are globally uncompetitive because of failing government structures. For example, feed and raw materials make up 70% of the cost to produce a chicken.
The transportation of those raw materials across the country is very important. Twelve years ago we transported 85% of our own feed materials by railroad. It is now close to zero because rail is non-existent. I have to transport by road at 2.2 times the cost. So who drives inflation?
Why does the competition commission want to investigate Astral who makes a 1% [profit] margin? Go and investigate the government’s failing infrastructure because they are driving inflation.
If Astral is profitable, does anyone but big business benefit?
The Public Investment Corporation (PIC) [which invests government workers pensions] is a 26% shareholder in Astral. They invest for returns.
Businesses are there to make profit. Otherwise, you don’t have a business and you don’t have a country. What do we do with a profit? First, we pay tax which goes into the government coffers and they are not spending it wisely. We don’t have to pussyfoot around that.
What do we do with the remainder of our profit? We reward our shareholders, our investors and institutions. The rest is reinvested back into the industry, building facilities to expand the business and create jobs.
Why is the poultry industry so unhappy about competing with poultry imports and reduced import duties?
I don’t have water at my Olifantsfontein farm. We don’t have water in Standerton. I have to build facilities to recycle water. I have to put down pipelines and pumps to produce our own water. It comes at a helluva cost. And now I must compete with Americans, who have none of that. All they have to do is farm chicken.
I mean, we’re the laughing stock of the world. When the, geneticists and the nutritionists come to visit us, they laugh and say you cannot run a chicken business like this. Yet somehow we survive.
In 2021, the commission expressed concern that there were only four providers of genetic material for the breeding of chickens in SA and even fewer in Europe and the US.
You need critical volumes before you can embark on a breeding programme. It’s capital intensive. You have to build facilities, hatcheries and breeding farms. Those don’t generate profit. They assist you to manage your costs. Otherwise, you will have to import eggs/genetic material and with our currency, you'll burn your fingers from day one.
We try to localise the production to keep the costs down. There are three other large companies who all have a breeding programme. They all sell their offspring to the smaller producers.
I can’t understand why that is a problem. If smaller producers want to invest in breeding facilities and genetics, it will close their businesses down because it is too capital intensive.
There may be concern by the commission that the big poultry players are too vertically integrated: owning the feed businesses, the chicken farms and abattoirs making it harder for smaller players to compete?
All of the integrated poultry producers’ feed mills were built in the past 50 years. Hardly any new feed mills have been built in the past five to 10 years, as the industry sits on spare production capacity. To build a feed mill now will cost you half-a-billion rand. If you are smaller you simply can’t afford to do this. The smaller chicken players buy feed.
Everybody competes for the same small market and that’s what keeps feed prices low and competitive. So it’s a highly competitive market. What does the commission want to investigate?
How did Astral survive SA’s worst bird flu outbreak and what about the small guys?
Due to culling, we imported fertile eggs, at double the cost of producing them in SA. We put them in quarantine, hatched them and got a-day-old-chicks and supplied them to the open market and to ourselves.
When you import eggs, you get a lucky packet. You don’t know what’s gonna hatch, because eggs have been in transit and quarantine.
For every 100 local eggs, you get 85 chicks that hatch. For every 100 imported eggs, 70 or 75 chicks will hatch. Now, if you’re a small producer, how can you afford that?
Rebates on some import duties were introduced because of fears of a shortage of chicken due to the 2023 bird flu outbreaks? Why has this angered industry?
There was never a shortage of chicken. We never missed a beat on production. And that is because we know the role of essential food producers. But it cost us money that you can’t pass that on [to consumers].
Now the department of trade, industry and competition minister [Ebrahim Patel] comes and says he’s gonna introduce rebates on the anti-dumping tariffs because there’s a shortage of chicken. I challenge him to come to the industry and show me where the shortage is.
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