Load-shedding respite for Quantum Foods despite R37m influenza loss

Quantam Foods said in a trading update on Friday that despite the continued impact of the bigger-scale outbreak of avian flu in South Africa in 2023, the company has recorded ‘an improvement in trading conditions’ during the quarter period under review. File photo

Quantam Foods said in a trading update on Friday that despite the continued impact of the bigger-scale outbreak of avian flu in South Africa in 2023, the company has recorded ‘an improvement in trading conditions’ during the quarter period under review. File photo

Published Feb 26, 2024


Quantum Foods, the diversified feeds and poultry business, has calculated the value of its chicken stock affected by an outbreak of Highly Pathogenic Avian Influenza during the quarter period to the end of January at R37 million although there has been some respite from a decrease in the cost base for raw materials as well as lesser load-shedding hours.

The South African poultry industry has been reeling from rolling electricity blackouts while the avian influenza last year resulted in shortages of table eggs.

While there has been an easing off in the outbreak of avian influenza in some key areas, operators have had to decentralise production to less affected areas and provinces of South Africa. Nonetheless, there was a resurgence of avian influenza in the four month period to the end of January 2024, and Quantum Foods has been counting the losses.

“The company also experienced further HPAI outbreaks in its layer farm operations in the northern provinces of South Africa during the current period. The value of the birds affected by the further outbreaks amounted to approximately R37 million,” Quantum Foods said in a trading update on Friday.

But despite the continued impact of the bigger-scale outbreak of HPAI in South Africa in 2023, the company has recorded “an improvement in trading conditions” during the quarter period under review.

For example, “feed raw material costs” and the “number of load shedding hours reduced. This resulted in “reduced operational costs which contributed to margin improvement” for the company.

During the period, Quantum Foods had to place layer breeder birds on newly contracted facilities as well as at alternative facilities it already owns to reduce the risk of diseases which could potentially impact future hatching eggs supply.

The company has had to import more hatching eggs to supplement its own severely depleted available supply. The newly placed breeders were being reared for future hatching egg production.

Consequently, Quantum Foods’ egg supply was approximately 60% lower during the four month period under review compared to eggs supplied in the year earlier contrasting period.

Although egg prices on the South African market had increased by slightly more than 60% during the period under review, the layer farming industry’s financial performance was still significantly impacted by both the lower throughput, leading to cost under recovery, as well as the further HPAI outbreaks.

Quantum Foods’ broiler farming operations at its breeder farm in Hartbeespoort was also affected by the HPAI outbreak in the quarter to the end of September. Consequently, the Hartbeespoort farm has remained dormant up to the end of January, with the consequential loss of hatching egg production resulting in both a lower hatching egg supply and an increase in the cost of hatching eggs used to supply the market with day old broiler chicks.

“Thecompany supplemented its locally sourced supply with imported hatching eggs to reduce the impact on its customers,” it said.

For its regional operations, Quantum Foods said trading conditions in Zambia were impacted by a significant increase in maize costs during the review period. The increased maize costs negatively impacted margins in the egg business and the demand for day old chicks as well as feeds.

There was an improvement in trading conditions though for the Uganda operations as lower feed raw material costs resulted in improved demand for the company’s products.

Egg selling prices for Quantum Foods’ Mozambican unit firmed up, resulting in “reduced supply” from South Africa.

“Overall, the group’s other African operations recovered well from the weak financial performance experienced during the previous period and contributed satisfactorily to the company's financial performance,” Quantum Foods.

The share price closed flat on Friday at R4.50.

Sector under siege

Earlier this month, in a move that has left the local poultry sector reeling in disbelief at the lack of support by the government, the Competition Commission launched a Poultry Market Inquiry.

The probe was launched in a South Africa election year as consumers battle a cost of living crisis, characterised by high food prices, in a move aimed by the government to ease the price of poultry.

South African Poultry Association (Sapa) summed up the probe in a statement on February 12, “Central to the inquiry will be the issue of the concentration of large companies in both the broiler and egg industries. There seems to be an underlying suspicion that this is bad for the industry and for consumers. We will provide the inquiry with our views on these matters.”

Sapa said, ”However, we are surprised that the inquiry is considered necessary and concerned at some of the statements and assumptions in the commission’s announcement.”

It said the poultry industry was extremely concerned at the commission’s statement that there were “ongoing demands for bailouts through ever-increasing tariffs and the imposition of anti-dumping duties”.

“As Itac (International Trade Administration Commission) and the Dtic (Department of Trade and Industry) will know well, the poultry industry has never in its history asked for “bailouts”.

“The use of this term indicates a hostility that we find disturbing. What the industry has asked for is protection against unfair and dumped imports. Itac investigations have repeatedly found that these imports are harming the industry and costing local jobs,” Sapa said.

Sapa was referring to the decision by Itac in January to allow rebates on frozen chicken imports, which is a blow for local poultry producers, who now face greater competition from imports after many of them faced massive financial losses last year amid the avian flu onslaught.

The Fairplay Movement, earlier this month in response to the double whammy, said in its weekly Bulletin, “Another blow by government as it targets SA’s poultry industry.”

“South Africa's poultry industry is in for a tough 2024, as the government introduces measures to discount chicken imports, and launches an inquiry into the local poultry market. This adds to the numerous challenges faced by local chicken farmers who have already suffered enormous losses due to bird flu and load shedding,” it noted.