Food producers dish out gains for South African investors

After years of struggling, Foord Asset Management said food producers listed on the JSE are back on the menu, with these stocks set to be attractive investments in 2025.

The JSE boasts a host of food producers, including well-known companies like Tiger Brands, AVI, Astral, Oceana, Premier Group, RCL and Rainbow Chicken. 

Foord equity analyst Dhersan Chetty said this sector has long been out of favour with investors due to their limited pricing power, heightened competition from private labels, under-investment in manufacturing facilities, and rising commodity prices.

These factors have squeezed margins for many local food producers. 

The avian flu outbreak in South Africa in 2023 and 2024 also had devastating effects on local poultry producers like RCL Foods.

In addition, Chetty said weak management in certain quarters has also contributed to these companies’ inability to pivot when needed. 

Therefore, investors often overlooked food producers in favour of more attractive growth opportunities elsewhere on the JSE.

However, Chetty said the tide appears to be turning. 

“In the current environment, specific food producers such as Premier, Rhodes, and, more recently, Tiger Brands, have begun to outperform, thanks to strategic capital investments,” he said. 

“By upgrading their facilities, these companies are generating a cost and quality advantage that has made them increasingly competitive.” 

He explained that Premier is a prime example. The company recently chose to close old, sub-optimal factories in favour of modern ‘mega factories’ that are highly automated. 

“This new technology has effectively doubled bread production while requiring one-third of the labour – a move that could double margins in the regions where these facilities operate,” he said.

Beyond these capital upgrades, the entire food producer industry is also enjoying a so-called ‘purple patch’. 

“After a prolonged period of negative volumes exacerbated by steep food inflation, there are recent early signs of a rebound,” he said.

“Food inflation has now stabilised. While high food inflation often benefits retailers, it can be detrimental to producers since passing on price hikes can lead consumers to trade down or reduce purchases.” 

“Conversely, stable and more reasonable levels of inflation are far more conducive to profitability, driving higher volumes and enhancing fixed-cost recoveries within factories.”

Chetty said the recent decline in commodity input prices, such as wheat, maize, and rice, will also benefit local food producers. 

“Also, lower interest rates, declining fuel prices and improved consumer confidence – partly due to the GNU’s policies and Two-Pot withdrawals – are supporting volume growth,” he said. 

“As a result, food volumes have surged to some of their highest growth levels in the past decade.”

Chetty highlighted forward-thinking companies like Premier and Rhodes, which are leveraging these improving conditions by focusing on profitable volume growth instead of aggressive price discounting. 

He explained that their investments in high-quality production and advanced technology allow them to offer competitive prices without sacrificing margins. 

“By upgrading logistics systems, strengthening procurement processes, and maintaining a disciplined approach to capital expenditure, they are not only cutting costs but also boosting returns on capital,” he said.

“This combination of better macroeconomic conditions, prudent capital allocation and tighter cost controls has led to rising earnings, improved free cash flow, and better returns on invested capital.” 

“Furthermore, these companies generally carry modest debt levels. Strong balance sheets allow them to deploy surplus cash toward higher dividend payouts and share buybacks – which, in turn, can boost share prices.”

All of these factors have combined to make a strong environment for local food producers to thrive.

Chetty said this is why stocks like Premier and Rhodes were among the top performers last year and key contributors to the stellar returns of the Foord Equity Fund. 

“The companies still trade at attractive valuations, especially when weighed against their revitalised fundamentals,” he said. 

“For smaller asset managers with the flexibility to take more meaningful positions in these under-the-radar small caps, the once-stale sector remains a compelling opportunity.”

Performance analysis

Daily Investor analysed the share price performance of food producers that are listed on the JSE.

This analysis revealed that most local food producers achieved double-digit share price growth in 2024.

The only companies that ended 2024 in the red are Oceana and Rainbow Chicken.

It should be noted that Rainbow Chicken was only listed on the JSE’s main board in June 2024 after it was spun off from its parent company, consumer goods giant RCL Foods.

Daily Investor’s analysis also showed that most food producers’ share prices are off to a tough start in 2025.

The only company that has seen its share price rise in 2025 to date is RCL Foods.

The performance of local food producers’ share prices in 2024 and in the year to date so far can be seen in the table below.