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Price fears as bird flu hits chicken supplies

Oct 10 2017 18:13
Lameez Omarjee

Johannesburg – Poultry producers have warned that the shortage of supply in poultry products, driven by the outbreak of bird flu, could result in higher prices.

On a visit to a poultry farm in Gauteng, Rooikraal Arendnes, producers of Eggbert Eggs and part of the Kuipers group, unpacked the impact of the highly pathogenic avian influenza (H5N8) on operations to Gauteng MEC of Economic Development, Environment, Agriculture and Rural Development Lebogang Maile.

Among the concerns raised by CEO of Kuipers Group Charles Le Maitre is that the price of chicken and eggs may go up because of the national shortage.

Maile who spoke to journalists following a briefing of the situation said that the situation was “devastating”. “This does not auger well for the fight against poverty because we all know the price of food has been unreasonably high. This unfortunately will contribute to an already crisis situation.”

Maile visited the farm to engage with management to develop a better understanding of the situation, which is a “very serious crisis”. The farm supplies eggs in the Gauteng region, but according to a statement from the MEC, the confectionary market has been negatively affected by the shortage of supply.

FNB senior agricultural economist Paul Makube has also warned that the cost of chicken will increase as producers have to carry higher costs. “Retailers are expected to lose their trusted loss leader as chicken prices become expensive. They are likely to rely on imports to lessen the impact on consumers,” he said.

Wessel Lemmer, Senior Agricultural Economist at Absa, explained to Fin24 that producers will have to carry additional costs of the losses, and measures of biosecurity, which could push the price of a dozen eggs up by R2 to R3.

Lemmer is of the view that there is no reason for retailers to increase the price of chicken and eggs by more than a percentage point as the losses are mainly borne by producers. It would be reasonable if retailers similarly increase prices by R2 to R3, he explained.

However, Gawie Rossouw, General Manager at Eggbert Eggs, said that retailers work with a profit margin, and even if costs at a producer level only increase by R3, the retailers will still mark-up according to their margin. 

Last week Fin24 reported that over two million birds in the Western Cape had died or had been culled in August, as a result of the highly pathogenic H5N8 strain of avian influenza (AI). According to Economic Opportunities MEC Alan Winde, this is almost 7% of the province’s birds. There are an estimated 29 million commercially farmed birds in the province and 185 000 “backyard” birds.

The Western Cape is worse affected by the outbreak as poultry farms are often clustered together. Winde said the impact of the AI could be as much as R800m.

Shortage of chicken in the Western Cape impacting product offering at a local KFC. (Shokat Hamdulay, Facebook). 

Dr Charlotte Nkuna, interim CEO at the South African Poultry Association (SAPA) confirmed to Fin24 that so far four million birds had been culled, the majority of them being table egg producing hens, or those consumable by humans.

When asked if SAPA was concerned that the outbreak was a major crisis, Nkuna said: “Given the number of hens that have already been culled, we are concerned that we could see shortages.”

But culling remains government’s policy. SAPA is working with government to take other measures such as vaccination, she said. 

“We are also looking at importation of hatching eggs mainly for meat producing chickens,” said Nkuna. Another option is to have government provide compensation to assist producers affected by the virus.

Long recovery ahead

It’s taken the United States and European Union 12 months to deal with the problem, South Africa may be dealing with the outbreak for the remainder of the year, said Lemmer. Additionally with seasons changing, migratory birds returning from the Middle East and Asia may also be contaminated.

At first, government estimated that only 2% of the industry would be impacted, but the latest figures from the Western Cape show that it could be close to 9% or 10%, as was seen in the US and EU, said Lemmer.

Le Maitre said that he expects a complete recovery of operations could take 12 months at Rooikraal Arendnes.

Makube estimates that it could take between three and four years for the poultry sector to recover, as the industry has been under pressure for over two years already. “If the outbreak persists and further culling of birds occur, the industry could find itself shedding a further 2 500 jobs, and see a dent of about 0.13% of GDP,” said Makube.

WATCH: The cost of bird flu on Western Cape farms

Industry players

In September RCL Foods which supplies Rainbow and Farmer Brown products said in a note to shareholders that the financial impact of AI amounted to losses of approximately R26m.

The outbreak had been detected on the company’s Heuningdal breeder farm in the Western Cape, and there was a “small outbreak” at its Viva breeder farm near Muldersdrift in Gauteng.

 

The company had depopulated its affected sites to 5% of the total breeder stock. RCL Foods said it would evaluate “all opportunities” to minimize the impact of the reduced volume.

“RCL Foods will continue to relentlessly implement the strictest possible biosecurity measures at all sites to safeguard the health of its flocks,” the SENS read.

In an update, Scott Pitman, MD of the consumer division told Fin24 by email that it has strategies in place to make up for the lost breeder capacity, which have reduced the impact from 5% to a “smaller number”. “So there is no dramatic impact on chicken volumes in the Western Cape.”

Julian Novak, head of fresh food at Woolworths said that the retailer has a direct relationship with South African suppliers of eggs, fresh and frozen poultry. “Under veterinary advice, our farmers have to keep our hens and poultry indoors temporarily. We remain committed to our local free range farmers, and birds will be allowed to return outdoors as soon as it is safe to do so,” said Novak.

 

Novak also said that suppliers have been adhering to strict biosecurity measures to protect the poultry and at the moment the retailer has “full availability” of product.

  

“As it is difficult to predict the future and as a retailer of poultry products, we are carefully monitoring the Avian flu situation, both internationally and locally,” Novak added.

Pick n Pay could give assurance of its egg supply. Tamra Veley, Pick n Pay spokesperson said that stores are fully stocked with eggs.

“We are in close contact with all our suppliers to make sure we have a consistent supply of eggs for our customers.” 


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pick n pay  |  woolworths  |  rcl foods  |  poultry  |  eggs  |  retailers  |  sa economy

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