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Send  Share  RSS  Twitter  23 Oct 2014

VENTURES: Coming Home To Roost

 



Recent Western Cape Business News

WILL the Western Cape poultry sector endure a bout of hectic consolidation in the next 12 months? The SA poultry sector is taking awful strain as input costs (ie maize) have soared and additional consumer demand has been diluted by an onslaught of imported chicken. The bottom line is that poultry producers have simply not been able to recover their extra production costs by a robust increase in prices.

The Western Cape poultry sector, however, appears to be suffering the brunt of these unfavourable conditions.

The recent interim results from Pioneer Foods – which runs the Tydstroom poultry operation in Durbanville – highlight the current predicament.

Although Pioneer does also hold feed and egg (Nu-Laid) operations in its agribusiness segment, the bulk of the business is generated by Tydstroom. Tydstroom is a substantial operation, producing 1.2 million of the 19.1 million broilers produced in SA every week.

In the half year to end March 2102 the agribusiness sector generated revenue of around R1.5bn (a 28% increase) – but reported juts R14m at operating profit level (a 83% drop).

Pioneer CEO Andre Hanekom reported that Tydstroom operation was “severely impacted” by the record high maize price, noting that sales volumes were up 8% but selling prices could only be increased 8%. “This was not sufficient to recover input costs.”

He noted Tydstroom’s entry into the Gauteng market was successful, but pointed out that being primarily Western Cape focussed the operation bore the brunt of the influx of poultry imports.

Hanekom said there would be a concerted effort on increasing efficiencies, adding that an extra 100 000 birds a week would be added in the Western Cape. “There is definitely space to improve on efficiencies…”

In an investment presentation Pioneer’s directors were asked about why more consolidation had not taken place amongst the smaller (struggling) poultry producers.

The Pioneer directors conceded there was a significant opportunity for consolidation amongst poultry players to buy opportunities for the longer term.

They noted Rainbow Chickens - SA’s biggest poultry group controlled by the deep pocketed investment conglomerate Remgro - had already bought some smaller players. “We might see more of this in the next few months.”

Rainbow Chickens has a massive presence in the Western Cape – two hatcheries, 52 farms, a feed mill and two processing plants. The company also has seven distribution centres in the Western Cape.

Rainbow Chickens also seems to be straining in the Western Cape. It reported recently (on the release of its year to end June results) that except for the Western Cape, agriculture performance remained consistently good.

Rainbow Chicken directors said the challenges in the Cape region - mainly higher mortalities and lower average daily gain - continued to receive significant management focus with winter performance historically being difficult.

Other than Rainbow, the other major player in the Western Cape, is Astral Foods’ County Fair operations, which processes some 1.33m birds a week. County Fair also operates an abattoir in Agter-Paarl which supplies birds to a fresh and frozen further processing facility in Epping Industria.

County Fair markets products under the County Fair brand with a product range of approximately 137 products. The day-old chicks hatched and placed on County Fair’s grow-out farms are supplied by their in-house breeding operations. Meadow Feeds, situated in Paarl, supplies all the poultry feed requirements.

Astral – which recently closed down its bakery operation in Bellville - should publish its full year results next month, and it will be interesting to gauge the operational performance in the Western Cape.

In the meantime all three big players may show a growing appetite to swallow smaller regional players. Whether a more sizeable deal could be clinched between the bigger players probably depends on how prolonged the prevailing pain lasts…


 
 
 
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