RCL hatches poultry rescue

SOUTH AFRICA – The gravity of the distress facing SA’s chicken producers was laid bare this week when RCL Foods, SA’s second-biggest chicken company, made the shocking announcement that it is overhauling its poultry operations.

RCL Foods, which owns the Rainbow Chicken and Farmhouse brands, said the industry was in a “deeper crisis than ever before”, and the company could not continue with the status quo if it were to avoid any further plucking of its profit.

“The chicken industry is in an unprecedented crisis … with no relief on the horizon,” RCL CEO Miles Dally told investors on Wednesday.

Imports were the biggest threat, RCL said, trumping pressures from new brining laws, stunted local economic growth, and pressures on household income.

Unprecedented levels of dumped chicken were being shipped by producers from Brazil and Europe, “who were willing to take whatever price they got”, management told investors in a presentation on Wednesday.

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These producers had turned to SA to find a home for their product, mainly boned leg quarters, which had been blocked by sanctions in Russia and turned away by China, which was growing its own industry.

The bone-in type was also a favourite among South Africans, more so than consumers in Europe, who preferred breast meat.

The volume of US chicken entering SA was small, RCL said, far below the maximum 65,000-tonne level allowed under the African Growth and Opportunity Act.

RCL said even though the rand had weakened significantly in the past year and SA had imposed some import tariffs, imports had continued unabated.

“This is why the industry is in crisis,” said Scott Pitman, MD at RCL’s consumer division.

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“Even if further tariffs are approved, exporters will just reduce their prices further,” he said.

There are tariffs imposed on non-EU imports and antidumping measures on some EU countries.

The industry is awaiting a decision — expected in October — on the 37% import tariff on bone-in chicken from the EU.

In the 12 months to June, RCL reported a 73% drop in profit for the year to R223.5m. Its profit slumped as the improvement in RCL’s groceries and logistics division could not compensate for the distressed sugar operations and its chicken business.

Earnings before interest, tax, depreciation, and amortisation from chicken fell 62%.

The performance of chicken was, however, two-fold. Gains were made in the food-solutions segment, where RCL supplies chicken to quick service restaurants.

But the individual quick frozen (IQF) segment, where it supplies frozen whole chickens, as well as 2kg-5kg mixed portions to retailers and wholesalers, suffered.

Management could not be drawn on exactly what the changes would be. “We can’t be too specific about what the changes [will be] at this point,” Dally said.

An analyst from Citibank, who could not be named, said RCL had already reduced its exposure to the IQF market and questioned what more could be done to remedy the situation.

In the past two years, RCL had cut production of IQF to 260 tonnes a day, from 600 tonnes previously. Astral, SA’s biggest producer, has had to cut production to manage oversupply.

September 2, 2016; http://www.bdlive.co.za/business/retail/2016/09/01/rcl-hatches-poultry-rescue

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