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Industry Warns of Poultry Price Hike Ahead

by 5m Editor
10 May 2011, at 10:22am

SOUTH AFRICA - The poultry industry has warned that prices are likely to escalate in the coming year, with indications that international prices will be higher than they have been over the past few years.

Kevin Lovell, the chief executive of the Southern African Poultry Association, told Independent Online of South Africa, that even though there was a surplus of grain, which is used in chicken feed lots, poultry prices would rise because the grain industry follows the US pricing structure.

He explained: "We must remember that maize is traded as a futures contract based on import parity and export parity."

Although prices were going up, if there was a shortage, prices would be much higher. Input costs had increased sharply and the industry, as well as retailers, should be raising prices. Mr Lovell indicated that prices were likely to increase by 15 per cent.

At retail level, most frozen chicken was currently sold at 16 to 18 rand (ZAR) a kilogram, and fresh chicken was sold at ZAR25 a kilogram, Mr Lovell said.

Poultry price increases were not unique to South Africa, and prices were set to be even higher in other countries, which were dependent on imported maize.

Mr Lovell criticised the US role in grain productions, arguing that its policy on biofuel was a crime against humanity because it used more grain for fuel than Africa used for food.

In their audited group results for the year ended 28 February 2011, Sovereign Foods said international pricing, together with the strength of the rand to the US dollar and to the Brazilian real, would determine the level of poultry imports and the pricing of these imports into South Africa.

Sovereign revealed that recent increases in the price of maize and protein were of major concern and the company expected that margin gains due to improved poultry prices would be mitigated by increases in the prices of feed components.

The company commented: "In the coming year, management intends to continue with its drive to improve yields across the supply chain, to continue to optimise its product mix and to improve service levels to its customers by utilising its new cold store, together with minimising the impact of external cost increases such as feed, raw materials and utilities on its cost base."

Nico Hawkins, the manager of commodity services at GrainSA, took a practical stance, and argued that just because there was a grain surplus it did not mean that it would not increase export parity.

South Africa currently has a 2 million ton surplus of grain, with exports 'going at a good rate', which also served as the price forming mechanism, Mr Hawkins explained.

SA Futures Exchange white maize prices for the July contract had increased to ZAR1,675 a ton in May, from ZAR1,140 in May 2010. This was a 32 per cent increase. The July contract for yellow maize in 2011 rose by 31 per cent to ZAR1,720 a ton from ZAR1,190 in May 2010.

Mr Hawkins suggested that these increases were a necessary evil, because it meant that farmers at least could produce maize profitably at current prices and would plant more grain if the prices increased.

However, he hinted that South Africa's maize prices were still cheap compared to other countries, and that if South Africa had to lose its surplus and become a net importer then prices would be even higher.

South Africa's prices were lower than other countries because of the surplus, he said.

Sarita van Wyk, the spokeswoman for the Shoprite Group, said the company was not in a position to determine the impact of rising producer prices of chicken, maize or any other product.

She said prices were determined by food manufacturers and distributors, market forces, as well as exchange rates.

She explained: "Maize prices are determined by international market prices and it is, therefore, difficult for the group to speculate about the price of maize meal in the future."

Simone Parry, the general manager of merchandise strategies at Pick n Pay, said the company's poultry product prices were dominated by market pricing.

"The market anticipates an increase in poultry prices, but we will always try to absorb as much of the increased supply costs as possible."

This would be done by "always running our business more efficiently,", she said.

She told Independent Online that a 5kg bag of maize meal had increased on average by four per cent over the past two years. Pick n Pay had a team of professional buyers around the country who would do "everything in their power" to negotiate the best possible prices so that the consumer could get the best pricing at all times, Ms Parry said.