Chris Schutte, CEO of the country’s largest and most successful poultry producer, Astral Foods, says local producers are globally uncompetitive and dependent on high import tariffs because of the government’s failure to fix dysfunctional municipalities and address other obstacles to productivity.
“The government is doing little or nothing to address structural impediments that prevent South African producers being as efficient as we could be,” he says.
He rejects the accusation that high import tariffs are protecting the industry from its own inefficiencies while hurting the poor, who can no longer afford to buy this important source of protein because of rocketing chicken prices.
Astral reported this week that its revenue rose 26.5% to R9.4bn over the six months to end-March, while headline earnings per share, a main measure of profit, rose 138% to R14.20, allowing it to raise its interim dividend by 163% to R7.90.
Schutte denies that import tariffs, which were hiked from 37% to 62% in March 2020, have allowed Astral to profit at the expense of struggling consumers. He rejects the argument that blocking cheap imports can’t be justified when people are starving.
“Chicken is still the most affordable protein. Consumers have made a shift from red meat to chicken because it’s the cheapest. Our analysis is there’s a massive pull on chicken because it is still relatively cheap compared with other protein sources.”
The importers bring it in cheap but they sell it just below our price. So we don’t see where this cheap chicken that they import is, we don’t see it in the market. They make massive margins
— Chris Schutte
He says Astral has only increased prices three times in the past nine months, amounting in total to R3.50/kg, which is not “rocketing”.
The first increase took prices back to where they were before Covid, “so it was a catch-up”.
The other increases were to make up for the dramatic hike in energy costs, including diesel for generators during blackouts, and mitigate soaring prices for poultry feed. The cost of maize and soya in particular have “soared” since Russia's invasion of Ukraine.
Schutte says the target of import tariffs is not legitimate imports, but dumping.
The International Trade Administration Commission (Itac) has found there is excessive dumping in SA, he says — in other words chicken products are coming in below production cost.
“Dumping is going to do the industry harm in the long run, and then chicken prices will go up even more.”
Eleven producers have gove out of business in the past 10 years mainly because of dumping, he says. “The more players that go under, eventually there will be a supply/demand imbalance and then prices will go up excessively.”
Not if consumers have access to cheap imports?
“This so-called cheap chicken that comes into the country: we have never, with assistance from auditing companies, found cheap chicken in any fridge, in any store.
“The importers bring it in cheap but they sell it just below our price. So we don’t see where this cheap chicken that they import is, we don’t see it in the market. They make massive margins.”
What about his own margins?
“We produce enough to meet local demand at very thin margins. After three price increases this year we’re still just 4% on broiler. So nobody here is profiteering on the situation.”
If dumping increases Astral will lose that margin and go into the red, he says. “We’ll have to start a cut-back programme, start retrenchments and not expand or reinvest in this business. That’s not going to be good for the consumer or the country.”
Astral is the largest private sector employer in Standerton, where its main processing plant is based. It directly employs 3,950 people there, and indirectly another 1,500. Without Astral the town would have almost no income, he says.
“For a long time there’s been hardly any expansion or newcomers to the poultry industry, and that had a lot to do with the threat of dumping.”
Because of the anti-dumping tariff people are starting to reinvest in their businesses.
He says a lot of competitors closed down plants and retrenched people because of dumping, which reached 32% of market share in SA and is now around 25%.
He rejects the inefficiency argument. South African poultry producers are among the most efficient in the world, he says, citing a study by Wageningen University in the Netherlands.
He admits they’re not the best cost producers, but says this has less to do with efficiency than with structural impediments. “Most of our competitors in other countries get government subsidies, which we don’t get. Our electricity and diesel is 40% more expensive, our raw materials which we have to import are more expensive because of the weakness in the rand. Our maize and soya are not subsidised, as they are for poultry farmers in countries like Brazil and the US.”
After three price increases this year we’re still just 4% on broiler. So nobody here is profiteering on the situation
Astral's profit levels would have been considerably higher if not for the fact that Standerton “is run by a defunct municipality with people who have no experience and absolutely no know-how”.
The Astral plant in the town “is the biggest abattoir in Southern Africa, slaughtering 6-million chickens a week. We don’t have water, we don’t have roads, we don’t have electricity. Our competitors in Brazil don’t have this issue. Or in the US or Australia or the UK.”
Astral had to spend R60m to install a reverse osmosis water cleaning plant and R65m for diesel-driven turbine generators to manage load-shedding.
“Our diesel bill per shift of slaughtering is R450,000. These are all costs that our competitors in other countries don’t have. How can I compete if I have to generate my own electricity, build my own roads and do my own water reticulation from the Vaal river?”
After his appeals for government intervention were ignored for five years, Schutte took Lekwa municipality to court and won a court order a year ago forcing it to draw up a financial plan to address the problems. Since then, nothing, he says.
If he weren't in the comfort zone provided by high import tariffs might he have more incentive to exploit markets overseas, where it's predicted demand for white meat will double in the next 30 years?
“The short answer is no. We're a local producer and from a cost perspective we are not globally competitive because I have to do everything and pay for it that the government is supposed to do for me. So we're not going to be able to compete with the Brazilians in Europe.”
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