State not coughing up as bird flu lingers

Bird flu remains a major risk to the local poultry industry and “will see mutations of strains coming every year”, says Astral CEO Chris Schutte. 

With Europe at the start of winter, there are signs of high infection rates there and those birds eventually travel to Africa. 

“Bird flu will be with us for quite a long time. We believe that as a small country at the bottom of Africa, the only possibility to protect our supply is with vaccination,” said Schutte. 

Progress is being made towards approvals for voluntary vaccination of broiler breeding stock, he said.

Astral, the owner of Goldi Chicken and County Fair, spent R400m culling a million breeding birds due to the highly pathogenic avian influenza outbreak. This forced it to import about 7-million fertilised eggs from Brazil to fill the vacuum and ensure there is enough chicken over the festive season. 

The bird flu strain H7N6 spread rapidly through Gauteng and Mpumalanga in the past few months, severely impacting Astral’s broiler breeding operations.

The company began its financial year to September by slaughtering 5.8-million birds a week, then reduced that to 4.9-million. It expects to recover production to 5.5-million slaughterings.

Suggestions that bird flu is under control are incorrect, said Schutte. “How do you control an airborne virus? The infection rate has slowed down because there are no chickens left.” 

Unlike in other countries, the government is not compensating poultry producers for culling livestock as a disease-control measure, he said. Globally, authorities usually take control of an outbreak, set up quarantine and surveillance zones, cull the affected flocks, safely dispose of the birds and then compensate producers. 

On whether producers can claim from insurance to recoup losses, Schutte said: “It is highly doubtful insurance cover for this risk will be made available.” 

This week, Astral reported its first loss in its 23-year history as load-shedding, which cost the company R1.6bn, and bird flu decimated earnings. Poultry feeding costs also increased significantly this year. Feed makes up 70% of the cost to produce a kilogram of chicken. 

Going forward, diesel spend will be embedded in costs and the company will have to recoup this from the consumer, “which will not be easy”, said Schutte.

Astral also battled water shortages because of load-shedding and other factors, costing the company about R170m. 

Schutte warned that water will be the next crisis, possibly worse than electricity shortages, because “you can't generate water like electricity that can be generated from solar and wind, and there is no money being spent on infrastructure, especially in rural areas. So if you won’t be self-sufficient and spend capital now, you will run into major problems with water supply.”

Astral has spent about R2.5bn to R3bn over the years duplicating infrastructure — electricity and water — to service the company, especially in Standerton, Mpumalanga, where its biggest processing plant is based, he said.

“This money could have been spent on creating jobs and expanding the business to improve capacity and efficiency, but it's money spent on duplication to get the same water from the same source through expensive private lines. In Standerton, where we are the biggest employer, it's very difficult to source water and electricity just for yourself and not the community [members who work] at your plant. We are also looking after the greater interest of the town to ensure people have water and electricity, so we also assist with that,” Schutte added.

Astral recently received a licence to pump water from the Vaal River to its Goldi plant in Standerton. 

As production normalises, the “first objective is to rebuild the balance sheet to its former glory as soon as we can”.

Returning the business to previous levels meant putting additional effort into cost-recovery measures. “The [biggest concern] for us as a supplier of food to the South African market is the ability and liquidity of consumers. They are not in a good state. People don't have discretionary and disposable income to pay more for everything thrown at them.”