Astral to Cut More Poultry-Output, Work Hours on High Costs

  • Impact of high chicken-feed costs more severe than anticipated
  • South African broiler maker mulls permanent output reduction

Astral Foods Ltd. will consider permanent production cuts if feed costs stay high and South African consumers remain under pressure, with the broiler-chicken maker trimming output for a second time this year and reducing workers’ hours to curb costs.

The price of animal feed is expected to continue rising into 2017 following a drought in the continent’s biggest corn producer, the Pretoria-based company said in a statement Wednesday. Record poultry imports have added to an existing surplus, resulting in lower selling prices as consumers grapple with slower economic growth that has undermined job security and raised debt-service costs.

“The group is also forced to introduce further and more severe cutbacks in the poultry production chain,” Astral said. “The impact of the planned production cutbacks will unfortunately negatively impact on the labor force due to the reduction in hours to be worked. If no relief is forthcoming from the key contributors to the current devastating circumstances being experienced by the poultry industry, more permanent downsizing of production will have to be considered.”

South Africa last year had the least rainfall since records started in 1904, damaging crops and raising food prices. Yellow corn, which is mainly used to feed livestock in the country, climbed to a record on June 17 as the nation is set to produce the smallest harvest since 2008. The country agreed to allow an annual quota of 65,000 metric tons of poultry imports from the U.S., which started to arrive in February. It also signed a pact enabling chicken and pork imports from Poland, ending 13 years of negotiations.

Financial Distress

A number of mid- to large-sized independent poultry producers are experiencing “severe financial distress and are either currently in the process of closing down their businesses, or are going into business rescue,” Astral said.

Land and Agricultural Development Bank of South Africa, a state-owned lender, sees imports and the drought resulting in consolidation in the country’s poultry industry, Chief Executive Officer Tshokolo Nchocho said in an interview last week. “My prediction is that we are likely to see a lot more mergers and acquisitions happening at poultry, a lot of corporate activity,” Nchocho said. “Feed costs account for 70 percent of their operating profit, so when those go up, it’s a disaster.”

Country Bird Holdings Ltd. has made a conditional offer to buy all the shares in Sovereign Food Investments Ltd. it doesn’t already hold, the companies said July 11.

Astral declined 3.5 percent to 121.10 rand by close in Johannesburg, falling a second day to the lowest since June 17.

Before it's here, it's on the Bloomberg Terminal.