South Africa

Load-shedding’s devastating effect on South African businesses exposed

Astral Foods CEO Chris Schutte revealed the devastating effect of load-shedding on South Africa’s poultry industry.

Astral Foods is a leading integrated poultry producer, supplying animal feed, broiler genetics, production, and sale of chicks.

It warned shareholders that earnings per share (EPS) and headline earnings per share (HEPS) for the six months ending 31 March 2023 are expected to decrease by close to 90%.

The reason for the poor performance includes high feed input costs, devastating levels of load-shedding, and the general decay of municipal infrastructure.

“These factors continued to impact operational efficiencies and costs negatively,” Astral Foods said in its trading update.

Its feed division successfully managed to limit the impact of load-shedding by utilising available spare capacity amongst its various feed mills.

However, it came at an additional cost. Future capital expenditure has also been committed to negating further risk.

The poultry division had a much tougher time. It experienced severe operational disruptions due to Eskom’s load-shedding.

“It has continued and led to abnormal additional costs as well as substantial production cutbacks of at least 12 million broiler placements for the first half of the financial year,” it said.

Abnormal costs have also been incurred on a backlog in the broiler slaughter programme, which has resulted in older and heavier birds consuming higher levels of feed.

In addition, high processing costs are being incurred as additional shifts are being implemented to try and address the substantial backlog in Astral Foods’ integrated broiler supply chain.

“The larger bird size and continued load-shedding disruptions have compromised our poultry product offering,” the company said.

A substantial poultry selling price increase would be required to recover the high feed input costs and the impact of load-shedding.

However, Astral was unable to implement the selling price increase, and as a result, it continues to subsidise the higher cost of production.

“Based on prevailing market and operational conditions, the cost to produce chicken exceeds the selling price by at least R2.00 per kilogram,” it said.

As a result, Astral Foods’ poultry division is expected to incur significant losses for the first half of the 2023 financial year.

Schutte reveals the impact of load-shedding

Speaking to Business Day TV, Schutte said their business needs good road infrastructure, reliable electricity and water, functioning railroads, and decent municipal services.

“These services are all falling apart, especially in the areas where Astral Foods operates,” Schutte said.

He said they continually make plans to mitigate the impact of deteriorating infrastructure, but a business can only do so much.

“Sometimes you run out of plans, especially when you do not have water and electricity,” Schutte said.

One area that is not often recognised is the impact of load-shedding on a company’s capital expenditure.

Astral Foods has a capital expenditure programme where the most money is focused on expansions, improvements, and business growth.

“Because of load-shedding, money is diverted away from strategic plans to grow the business to produce your own electricity,” he said.

“During this period, we are going to spend approximately R200 million on electricity generating capacity. This money could have been spent on growth.”

Astral Foods is also spending money building its own water storage and purification facilities because of municipalities’ failure to provide reliable, clean water.

The effect is that poultry is becoming far more expensive than the average food inflation basket, which has a devastating effect on low-income households.

Schutte said load-shedding is hurting South Africa’s ability to create jobs and provide its citizens with decent food.