CBH flies idea of Sovereign merger

SOUTH AFRICA – Country Bird Holdings (CBH) does not believe that a merger with Sovereign Foods creates any competition concerns, as the combined entity would control only about 11% of the local poultry market.

CBH chairman Kevin James said on Friday he was hoping for a response to their Competition Commission notification within the next four weeks.

“The two major players, Rainbow and Astral, each has around 28% market share so the share of the combined entity presents no threat,” he said.

James said the combination of the CBH assets with those of Sovereign presented attractive synergies and involved little overlap of operations.

“The rationale behind the two companies getting together makes lots of sense,” James said.

Creating more efficient local operators should help to deal with the growing threat from imports led by hefty volumes from Brazil and the EU.

Imports from the US currently account for just more than 10% of total imports of 520,000 tonnes of meat.

A recent report by the US department of agriculture says imports, which shot up 20% in 2016, currently account for about 30% of South African poultry consumption.

In 2015 imports rose 17% and the department is forecasting an 8% increase in 2017.

The 8% increase in imports will be closer to the expected 6% rate of growth in demand in the domestic market.

“Given a return to normal weather conditions in the 2016-17 summer season and an associated decline in corn [maize] prices, as well as the new brining regulations and an estimated 6% growth in demand, [we forecast] a 5% increase in broiler production in 2017 to 1.4-million tonnes of meat,” the department says.

Poultry production has increased almost 60% since 2000 in line with steady economic growth and increased average income.

With a value of almost R40bn, says the department, it is the country’s largest individual agricultural industry, representing almost 17%of the gross value of agricultural products.

But local producers are vulnerable to weather-related spikes in feed prices, as well as rand-related spikes in feed that are priced on an international market.

And, more recently, they are vulnerable to what some local producers describe as “dumping” by countries with excess product.

James said against this backdrop, it wais essential that local producers were efficient in order to protect local jobs.

“Five or six smaller poultry companies have closed in the past few months,” said James, who added that the damage from imports has been so severe that even the large players were cutting jobs.

October 10, 2016; http://www.bdlive.co.za/business/retail/2016/10/10/cbh-flies-idea-of-sovereign-merger

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