Uncertainty continues in South Africa’s poultry sector

With a series of challenges facing the South African poultry industry in recent times, several companies operating in that sector have reported deteriorating financial results.

(Yurii Bukhanovskyi | Bigstock)
(Yurii Bukhanovskyi | Bigstock)

With a series of challenges facing the South African poultry industry in recent times, several companies operating in that sector have reported deteriorating financial results. Meanwhile, there have been moves towards mergers and acquisitions within the industry, and one long-running saga still has to reach a final conclusion.

Three months ago, it was reported that Country Bird Holdings had made a bid for full ownership of Sovereign Food Investments Ltd. The offer was shortly due to expire.

It appears that, even now, a merger between the two companies could take place.

As recently as last week, CEO of Country Bird Holdings (CBH), Marthinus Stander, told Biz Community that his company has sufficient funds not only to acquire Sovereign Foods but also to carry out plans for growth of the merged entity, including the creation of new jobs.

Already owning a 34.1 percent share of Sovereign, CBH was blocked by the Takeover Regulation Panel in November from acquiring the controlling share. However, the Competition Commission approved the deal following assurances from CBH that there would be no retrenchments or job losses for at least three years after the merger. 

According to Stander, Sovereign had objected to the favorable decision on the basis that it would be against the public interest by reducing competition in the sector.

Recent share price movements indicate investors believe the deal may yet go ahead, according to analysts.

Government support for the poultry sector

An earlier drought pushing up feed prices and a sharp rise in imports of poultry meat have been cited as the most important factors in the present difficulties in the South African poultry sector.

Imports of poultry meat from countries other than the U.S. were 23 percent higher in the eight months to August 2016 than in the same period of last year, according to a recent report on Moneyweb. In addition, 15,500 tons of bone-in poultry meat products had also been imported under the African Growth and Opportunity Act (AGOA).

Stephen Heath of Rainbow Chicken Limited Foods (RCL Foods) told Business Day that imports of chicken to South Africa averaged 27,500 tons per month for the 12 months to June 2016, which represents a 43 percent increase over the previous year.

The challenges are being experienced by many of South Africa’s poultry meat companies. Just last week, Business Day reported that RCL Foods announced cuts of at least 1,200 jobs at its processing plant in Hammersdale in Mpumalanga province in the north-east of the country.

South Africa’s Department of Trade and Industry (DTI) has said recently it is aware of the concerns raised by the country’s poultry industry, particularly in relation to the increase in imported poultry meat.

The government, through the DTI and the Department of Agriculture, Forestry and Fisheries (DAFF), says it has been working with the domestic industry to address the challenges posed by imports. Among the actions the government has taken over the last three years are the raising of tariffs covering a number of poultry products in line with South Africa’s international commitments, and imposing trade remedies where evidence supports the dumping of poultry in the domestic market and a surge in imports.

DTI cites the increase in import duties on poultry products from Brazil and the U.S. imposed since 2013, while a preferential trade agreement with the European Union meant that different rates were applied from 2015 to some imported products from selected EU states.

New export markets for South African poultry are constantly sought by the DTI and DAFF, and the trade body is also exploring the opportunity to designate domestic products for public procurement.

A national committee including DAFF and poultry industry stakeholders, to develop a strategy “to address these challenges in a holistic and sustainable manner,” according to the DTI.

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