Astral Foods Cuts 150 Jobs as Grain Prices Rise to Record

Astral Foods Ltd. (ARL), South Africa’s second-biggest chicken producer, cut 150 jobs as it reduced output after the price of grains, the biggest cost, surged to a record and cheaper imports of the birds increased.

The reductions are “directly related to ‘cutbacks’ on production,” Chief Executive Officer Chris Schutte said in an e-mailed response to questions Aug. 21. “Further cutbacks and possible retrenchments will follow.”

Local prices of grains, which comprise as much as 75 percent of the cost of producing chickens, rallied to a record last month as the worst U.S. drought in almost 50 years damaged crops and raised world prices. Poultry imports to South Africa are at a record according to Astral, which employs more than 12,000 full-time and contract employees.

Poultry producers may have to cut more positions as companies struggle to pass expenses onto consumers, the South African Poultry Association said.

“Some of them have already retrenched, but they are planning to retrench in the order of 3,000 people over the next month or so,” association Chief Executive Officer Kevin Lovell said in an Aug. 7 interview. “Disposable incomes are stretched for consumers. As much as we know we need to raise prices, we also know that the chances of being able to do that are rather limited.”

Jobs, Growth

The nation’s economy, the continent’s biggest, will probably expand 2.6 percent this year, according to the International Monetary Fund, less than the National Treasury’s February estimate of 2.7 percent. The government has said it needs 7 percent annual growth to cut the jobless rate to 15 percent by 2020 from 25 percent currently, the highest of more than 60 nations tracked by Bloomberg.

South Africa’s per-capita chicken consumption was forecast at 31.2 kilograms (68 pounds) by the U.S. Department of Agriculture last year, compared with 59.4 kilograms in the United Arab Emirates, the biggest per-capita consumer in the study, and 2.3 kilograms in India, the least per person.

Rainbow Chicken Ltd. (RBW), the nation’s biggest poultry producer by volume, on Aug. 15 said earnings per share in the year through June probably fell as much as 35 percent compared with the previous 15-month period. Astral’s profit for the six months through March dropped 17 percent, it said on May 14.

Rainbow hasn’t cut any jobs as a result of the state of the chicken industry, it said in an e-mailed response to a query on Aug. 22.

Import Tariffs

Country Bird Holdings Ltd. (CBH)’s Supreme Poultry unit also hasn’t cut jobs, Managing Director Jack Searle said.

“Uncontrolled cheap chicken that is been dumped into South Africa from Brazil, Argentina and the European Union is detrimental to the local poultry industry and if left unchecked by the South African government will lead to job losses,” he said in an e-mailed response to questions yesterday.

South Africa in February imposed additional import tariffs of as much as 63 percent on certain cuts of chicken from Brazil. The Latin American nation filed a dispute against South Africa with the World Trade Organization over the taxes on June 21, seeking consultations under the dispute settlement system. The tariffs were due to expire on Aug. 10.

The International Trade Administration Commission of South Africa, which calculated the charges, presented Trade Minister Rob Davies with a final report on its investigation on the imports before the deadline, spokesman Thembinkosi Gamlashe said on Aug. 8. The department of trade and industry didn’t answer calls or respond to e-mailed requests for comment.

The local price of yellow corn, mainly used as animal feed, reached an intraday record of 2,841 rand ($342) a metric ton on July 31. White corn climbed to a record 2,879 rand a ton on July 23.

“Input costs cannot be recovered from the consumer via the trade due to an imbalance in supply and depressed demand,” Astral’s Schutte said in an e-mailed response to questions on Aug. 3. “Local supplies are negatively impacted upon by the year-on-year increase of about a 40 percent increase in poultry imports.”

Astral shares declined 0.5 percent to 109.50 rand by the close in Johannesburg, taking its drop over the past 12 months to 6.4 percent.

To contact the reporter on this story: Tshepiso Mokhema in Johannesburg at tmokhema@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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