Pioneer Foods Says Drought-Hit Grain Prices Weighing on Earnings

  • Input costs for corn-based foods rose almost three-quarters
  • Rand-weakness exacerbates food inflation, weighs on margins

Pioneer Foods Group Ltd. said a drought in South Africa is weighing on earnings as soaring grain prices hit volumes and margins at the country’s second-biggest food maker.

The company’s input costs for corn-based products rose 74 percent during the four months through January while wheat import tariffs were almost six times higher at 911 rand ($57.44) per ton, the Cape Town-based company said in a statement Friday.

South Africa’s largest food producers, including Pioneer and Tiger Brands Ltd., are struggling with the impact of the lowest rainfall in South Africa since 1904 that’s resulted in the local prices of key staples such as white corn more than doublingsince the start of last year. Price increases are exacerbated by rising import costs, with the rand losing 28 percent against the dollar since the start of last year, the worst performer among 16 major currencies tracked by Bloomberg after Brazil.

“Rand weakness and the concomitant cost-push effect will accelerate inflationary pressure on food manufacturers, and increase the burden on consumers,” Pioneer said. “Managing volume and margin imperatives becomes a delicate balance.”

While the group’s sales rose 8 percent during the period, earnings growth will be “muted,” Pioneer said.

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