May 16, 2013

Astral Foods reports 82% drop in earnings

Due to imports which have flooded the market and feed prices which have jumped by more than one-fifth, Astral Foods' earnings for the last six months have dropped by 82%.

The significant drop in earnings meant that no interim dividend was declared.

Astral Foods, a South African poultry producer, said slowing economic growth and higher unemployment levels meant consumer spending would remain depressed and this, coupled with high levels of poultry imports, would continue to hamper the industry's ability to recover the high input costs.

In the period reviewed poultry imports from Brazil and the EU hit record highs in October and November 2012. An application has been made by the South African Poultry Association to the International Trade Administration Commission for the implementation of higher general tariffs on poultry imports. This is in response to the large and rapid increase in the volume of extremely low-priced imported frozen poultry meat and, if successful, the company states that this would go some way towards improving the imbalance in the supply and demand of chicken.

"We predicted this coming up with the high input costs, record highs on corn and then also soy on the back of adverse weather conditions, together with our inability to pass that on to the market and, again, impacted by high levels of imports. So it was a perfect storm for us", mused Chris Schutte, the CEO of Astral Foods.

"Our status strategy is to be the low-cost producer. Our focus is on producing the cheapest kilogramme of meat up to the point of abattoirs and it's at that point - once you have the lowest cost kilogramme of meat - where you have options of what to do to market your product. We still believe that, if you look at the make-up of this country and southern Africa, that the lowest cost product, that means your individually quick-frozen product, has got the best potential. That's, unfortunately, where we have been attacked by the importers. So no, we will produce cheaper chicken and we will keep on focusing on that. The part of the market that will go for the value-added products - the crumbed products for example - is less than 1% of the total market and we do not believe that's where we want to play. We want to play in the mass market, getting low-cost poultry into the mass market," concluded Schutte.