High feed costs, civil unrest weigh on Astral Foods’ full-year earnings

Astral Foods, the South African poultry producer, has reported a 15% drop in headline earnings, citing high feed costs and a host of other challenges that have impacted its bottom line. In a recent interview with CNBC Africa, Astral Foods CEO, Chris Schutte, highlighted the various factors that have contributed to the company's earnings decline. The surge in raw material costs, driven by international markets, particularly corn and soy, has put immense pressure on the company. Despite having two good local crops in recent years, the prices have been influenced by external factors such as the Chicago Board of Trade and global demand, including China. Additionally, the rise in Brent crude oil prices has affected estimal margins in America, diverting corn towards ethanol production rather than the poultry market, further straining feed costs. These input costs, mainly maize and soy, constitute about 70% of the poultry production expenses, significantly impacting Astral Foods' financial results. Schutte noted that Astral Foods faced a convergence of challenges, including a bird flu outbreak, civil unrest and looting, load shedding, and non-service delivery in certain areas. In particular, the dysfunctionality of the municipality in Statendam, affecting infrastructure and services, had a significant financial toll on the company's operations in the region. Moreover, the impact of high energy costs, particularly diesel and petrol, added to the financial strain on Astral Foods. The CEO emphasized the difficulty in negotiating prices with major retail groups due to their strong buying power and the competitive market environment. Retailers often push back on price increases, affecting Astral Foods' profit margins. Schutte highlighted the challenge of balancing cost pressures with pricing strategies to maintain profitability. Regarding the issue of poultry imports, Schutte acknowledged a slight decrease in imports over the past year, but noted that more needed to be done to create a level playing field for local producers. He emphasized the importance of fair trade and preventing dumping of cheap imports that undercut local production. Schutte called for a more equitable environment that prioritizes local job creation and industry growth. Looking ahead, Schutte expressed cautious optimism for the future, citing potential improvements in feed costs due to favorable local crop conditions. He anticipated stability in pricing for the upcoming period and a possible easing of pressure on the poultry industry and consumers. Despite the challenges faced by Astral Foods, including high feed costs and civil unrest, the company remains determined to navigate the headwinds and position itself for future growth. The resilience of the poultry industry, coupled with strategic decision-making and market adaptability, will be crucial for Astral Foods to overcome the current economic hurdles and drive sustainable profitability in the long run.