South African poultry producer, Astral Foods, has had a tough six months as weak consumer spending has caused retail prices of poultry meat to decline.
"We are in an overproduction situation at the moment and pricing is under severe pressure," says Astral chief executive Chris Schutte, adding that consumer poultry prices declined to a three-year low in the past three months.
Peter Wille, an equity analyst at BoE Private Clients, said although Astral had not expanded as aggressively as its competitors, the group was still affected by the current oversupply situation. "The issue has been aggravated by weaker consumer spending and an increase in imports," Wille said.
Last year competitor Sovereign Foods completed the bulk of its expansion programme started three years ago.
"World cup effect"
According to Schutte, the winter months are usually slower and the World Cup did not bring any positive benefit to the poultry industry. " The World Cup has had a negative effect on the poultry market as people spent more money on tickets and transport," he said.
Although the group had been adversely affected by overpricing, Schutte said Astral was "well-supported by lower input costs".
Astral recently concluded a transaction of R23 million to purchase the assets of the Vredebest Farms in the Western Cape. The purchase includes three farms, namely Anysrug, Hillcroft and Vrymansfontein.
Schutte said the farms were the "perfect geographical fit" for the company's existing operations and that it was important for Astral to have land available for future expansion. The company's expansion plans are mostly on the breeder side, where it would produce eggs to be hatched for broiler production.