Chicken prices do need to increase – RCL CEO

The country’s shoppers need to brace themselves for longer pauses at retail store freezers. Chicken prices are expected to keep rising as poultry producers struggle with profit-restraining input costs.

Speaking to Moneyweb following the release of RCL Foods’ 2023 financial results on Monday, CEO Paul Cruickshank did not indicate a nearing end to elevated chicken prices. This comes as poultry industry players, including its own Rainbow businesses, continue to battle higher operational costs, which have been pushed mainly by elevated raw material prices.

“The chicken prices do need to increase; I mean, our results are clear in the losses we’ve posted for Rainbow, and the competitors will be very similar. We are up against a consumer who can’t afford to pay… but chicken businesses across the country are making losses.”

“What we really need is for a better supply-demand balance in the country, which import duties will help with. The second thing chicken [producers] really needs is the reduction in the raw material costs, and then that will bring a better balance between what the producer makes and what the consumer [affords],” he added.

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According to a fact sheet provided by RCL, it has seen a 13.6% rise in Safex Yellow Maize prices from an average price of R3 852 per ton in 2022 to an average of R4 377 per ton this year. Additionally, the global price of CME Soya rose 12.8% to $449 per ton, while Safex wheat prices increased by 7.2% over the last year to an average price of R6 846 a ton.

Yellow maize and soybean are key ingredients used in animal feed along with, in some cases, wheat and white maize.

Although the chicken business reported an 18.3% rise in revenue for the period to R13.46 billion – supported by strong demand, increased market share and higher prices in the fast-food sector, this was not enough to offset cost pressures in the business.

This is the largest Ebitda drop for the group’s continuing operations. The Ebitda margin for Rainbow dropped 2.7 points to 0.3%.

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Unavoidable

Head of information and marketing at FNB Agribusiness Dawie Maree, confirmed to Moneyweb that chicken price increases are unavoidable in the face of the current challenging environment for poultry producers.

“I think it’s unavoidable that chicken prices will rise, and there’s a couple of reasons for that. First of all, the pressure in terms of the inputs – all the way from farmer level up until processing and manufacturing level – given [high] feed costs, fuel costs and also the impact of load shedding, we definitely can expect it to rise but hopefully not for too long.”

“At least there was some stabilisation in the feed prices. Fuel is, unfortunately, the problem at this stage, and coupled obviously with load shedding now again on higher phases, those generators need to run more.”

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Food price relief

Pleasingly, according to the ownes of Sunbake bread, Selati Sugar, Ouma and Yum Yum brands, consumers could start seeing price relief in the grocery and baking categories, as commodity prices are expected to ease later in FY2024, in comparison with the very high peaks that were largely induced by Russia’s invasion of Ukraine, which disrupted global markets and supply chains.

Over the last year, No.11 world sugar prices increased by 9.3% from an average price of US19 cents in FY2022 to US20.8 cents. Safex Sunflower was the only commodity highlighted by RCL Foods that registered a decrease, registering a slight 1.9% decline to R10 266 per ton.

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“I’m not sure how it’s going to flow through to the consumer and when because of the timing of this issue… but what I can say is that I think what the consumer is going to see is a much slower inflation going forward over the next 12 months to what they’ve seen in the past 12 months,” he added.

The Pietermaritzburg Economic Justice & Dignity Group’s (PMBEJD) latest Household Affordability Index for August indicates that the basket price of core staple foods – including maize meal, rice, cake flour, white sugar and cooking oil – cost R2 826.37, making it R201.44 or 7.7% more expensive than it was last year.

Overall, PMBEJD reported that the average cost of the household food basket increased by R348.17 to R5 124.34, about 7.7% higher than in 2022.

This article is republished from Moneyweb n under a Creative Commons licence. Read the original article.