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Chicken to cost more?

The SA Poultry Association (SAPA), which represents chicken producers, said recently that local poultry producers had been holding out for far too long and would have to act in the near future with the implementation of a substantial price hike that could see consumers paying about R2 per kilogram more for chicken. This is due to the increased pressure being felt by producers faced with steep increases in input costs as well as fierce competition from higher imports.

Poultry is the single biggest source of protein for South Africans, with chicken and eggs accounting for more than 60 percent of all the animal protein consumed. Not to mention that, given the average price of red meat, chicken and eggs are virtually the only affordable protein staple for millions of ordinary South Africans. Individual Quick Frozen (IQF) portions account for almost 65 percent of the total volume of chicken sold locally while fresh chicken only makes up about 11 percent of the market share.

Poultry producers, including Astral Foods, Sovereign Foods, Country Bird, RCL Foods and Afgri, have been exposed to record high yellow maize prices, which constitute about 50 percent of chicken feed. They have also been faced with high chicken imports despite the tariff increase imposed on imported portions last year. Sapa’s chief executive Kevin Lovell, argued that although there had been some claims that chicken prices were high, they had actually remained consistently low. “The reality is that retail prices of frozen chicken have declined,” he said. He added that the latest statistics showed that, overall, chicken price inflation continued to lag behind the overall food inflation index.

According to Lovell, broiler producer prices have increased by less than half a percent since 2008. He went on to say that producers had been taking the price hit along with retailers to some extent. “Most producers lose about R1.50 to R1.80 per kilogram of chicken at the moment.” Lovell said because of the above reasons, frozen chicken prices should increase but he was not sure if this would happen as history was against chicken producers. “Common sense tells us that it should happen but history does not support common sense. The forecast is that companies which are doing badly will perform worse and this cannot carry on indefinitely.”

If the frozen chicken price does go up, companies may do better, however, consumers will have to pay more or consume less protein in their diet. If companies wanted to improve their margins, then the price of a kilogram of chicken would have to go up by about R2, Lovell said.

Apart from the threatened overall price increase for chicken, poultry producers, government and consumers alike have still to come to terms with the thorny issue of brining. Until not too long ago, many consumers were unaware that their IQF chicken portions even contained brine at all – let alone that brine made up 30% of the total weight of each piece. This little piece of information, whilst not actually withheld from the consumer, was not exactly ‘shouted about’ by the poultry producers either. Ignorance was bliss and producers, in effect, (and in the eyes of the average hard-pressed consumer) scored a 30% bonus for every kilogram sold just by adding a little salt water – despite their vehement protestations that the brining was necessary to “preserve moisture” and “improve taste”. The pro’s and con’s of brining and the validity of the arguments – both for and against – continue to be hotly debated in the industry – with Sapa’s Kevin Lovell maintaining “people failed to realise that brining worked in the consumer’s favour” and David Wolpert, chief executive of the Association of Meat Exporters and Importers of SA saying “the practice had resulted in consumers being exploited and abused.”

 Recently, government stepped in and introduced new legislation that forced producers to, with immediate effect, clearly indicate on their packaging that the product contained 30% brine. Joe & Jane citizen woke up, realised that they had, in effect, been duped for years and started making a stink about the practice. More pressure for the poultry industry. So much so that the Department of Agriculture, Forestry and Fisheries has informed producers that they have plans to force the industry to reduce its brine content to 15% for IQF portions with effect from 2015.

In closing, it is admirable (and about time) as well as worthy of mention that the government is acting in the best interests of consumers in clamping down on this essentially unfair practice. From the producers side – despite a great deal of teeth-gnashing and amid somewhat dubious claims that the industry’s machinery/equipment will not operate at optimal efficiency if brining levels are reduced from 30% to 15% - it would seem that the industry’s “heydays” are about to end. In keeping with many other South African industries, the poultry industry too, will have to reduce margins, increase productivity whilst simultaneously reducing overheads in order to remain viable and competitive whilst facing increasing consumer resistance to their practices, as well as increased competition from cheaper foreign imports.

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