Food security warning for South Africa as load shedding decimates major chicken producer
Astral Foods, a major poultry producer, says the difficult macro-economic environment could worsen food insecurity in South Africa.
In its unaudited interim results for the six months ended 31 March 2023, Astral Foods said that a difficult operating environment had severely affected its balance sheet.
Although revenue went up 5.7%, this was due to the company increasing poultry selling prices, with higher feed prices seeing raw material costs skyrocket.
The group’s operating profit dropped by 88% to R98 million – down from R785 million in March 2022, with the group reporting load shedding costs of R741 million that were not recovered from the market.
Headline earnings per share and earnings per share also dropped by 88% and 89%, respectively.
Moreover, the impact that load shedding had on the poultry division, especially boiler operation, decimated all economy-of-scale benefits and operational efficiencies.
The poultry division thus incurred a loss of R283 million, mainly due to the high feed input costs.
That being said, the group’s overall operating margin remained positive at 1.0% – down from 8.3% in March 2022.
Amid a challenging environment, the group did not declare any interim dividend.
A condensed consolidated statement of comprehensive income for the period under review can be found below:
Food security warning
The group said it expects a period of political instability in the build-up to the 2024 national elections, with policy uncertainty and poor service delivery from the government anticipated.
The lack of service delivery is expected to have a major cost burden on businesses and consumers alike.
Moreover, the macroeconomic crisis in the nation is hampering any hope of job creation, and disposable incomes will be under severe strain with a possible recession on the cards.
The group said that the energy crisis, failing water supply networks and the state of Transnet are destroying the capacity of the agricultural sector to function efficiently, making it globally cost uncompetitive.
The group warned that the challenging macroeconomic environment could lead to food insecurity in South Africa.
“The continuous costly disruptions to Agri-processing businesses and the integrated food production value chains have left South Africa with deepening hunger and poverty levels, especially amongst the most vulnerable of communities, and an even greater threat to food security is plausible,” the group said.
Group operations
Astral said it expects its second-half reporting period to reflect a “half of two halves”, with measures to fight load shedding and water supply issues resulting in different financial results for Q3 and Q4.
Raw material costs are expected to drop in Q4 as the group’s procurement strategy tries to reduce coarse grain prices both locally and globally, but these efforts may be hampered by a weaker local currency – the rand recently hit an all-time high last week.
Moreover, the group expects to spend roughly R45 million per month on diesel, with stage 6 load shedding expected.
The group said all capital expenditure will be placed on hold except for necessary maintenance and emergency measures in electricity and water supply.
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