South Africa’s poultry sector, like every other company in the nation, will be monitoring projections for the severity of power outages this winter with bated breath.
Winter, peaking in July, sees the highest level of electricity consumption, placing further strain on Eskom, the country’s beleaguered power company. The company has warned consumers to expect power outages for the next two years as it works to get its coal-fired power plants back up and running.
With power outages unavoidable, the challenge for companies is the frequency and, more importantly, the duration of the outages. The power cuts, known as load shedding, are implemented in stages and have frequently been between stages 2 and 4, with outages totalling between four and six hours a day.
The recent installation of stage 6 load shedding, with outages lasting 10 hours or more per day, wreaked havoc on production lines, including the 24-hour operations of the main chicken producers.
Kgosientso Ramokgopa, the country’s new electricity minister, says he does not expect power outages to go beyond stage 6 this winter. It implies a return to stage 6 is very likely. Nevertheless, private-sector analysts believe it might become worse.
In January, Peter Attard Montalto, the leader of the Intellidex consultancy, accurately anticipated stage 6 and forecasted stage 7 or worse by July.
Yet, according to energy analyst Clyde Mallinson, the UK might face stage 11 outages this winter in the worst-case scenario. Instead, he projected an average of stage 4 cuts between April and September, with a maximum of stage 6 in June, as promised by the electrical minister.
In a radio interview, Izaak Breitenbach of the South African chicken sector warned that although stage 2 and even stage 4 cuts were manageable, stage 6 outages posed genuine issues and threatened food security.
To feed the country, poultry farmers butcher 19 million birds each week. Chicken is the cheapest meat in the country, accounting for 66% of total meat consumption.
And, as Eskom and all of its customers are well aware, winter is on its way.
Eskom will soon be irrelevant, says Remgro chief
Jannie Durand, CEO of South Africa’s largest private investment firm Remgro, offered a different perspective on Eskom this week.
Durand predicted that Eskom will be obsolete in five years in a radio interview following the announcement of Remgro’s interim results.
He projected that the private sector will take over much of the generation and delivery of power. He stated that this was the way to go for all of South Africa’s state-owned firms and that it “should be done more and more.”
He cited the triumphs and advantages of South Africa’s efficient privatisation of the telecoms industry in the 1990s and 2000s.
Remgro is fulfilling part of Durand’s prediction. The company has launched an energy exchange which is to start selling affordable wind and solar power to South African businesses in June this year.
“We can actually now buy power in Mpumalanga and sell it in the Western Cape using the Eskom grid. Also what is quite compelling is we can get price certainty to the consumer,” Durand said. “We will mainly be trading in green energy, prices are very constant, and obviously nobody can steal wind and sun so that makes it a lot easier.”
Increased competition would benefit consumers, especially if there was further deregulation of electricity supply. “
I’m firmly of the opinion that in five years’ time Eskom will become irrelevant and it will be done mostly by the private sector,” Durand stated.
Agricultural prospects are not good
The short-term outlook for South African agriculture, including poultry, is not good. That means the country’s food security remains at risk.
Continuing power outages known as load shedding, rising input costs, a huge electricity price hike and a stagnant economy do not bode well for South Africa’s farmers.
In its analysis of GDP data for the fourth quarter of 2022, the independent Bureau for Food and Agricultural Policy (BFAP) noted weak agricultural growth after two years of being the strongest performing sector of the South African economy.
Agricultural growth was reduced to only 0.3% in 2022, and the challenges the sector faced have continued this year.
“Severe cash flow constraints, together with the far-reaching impact of load shedding, is likely to affect marketable volumes and consequently also revenue performance of many agricultural products in 2023.”
Agricultural production costs increased by 14% in the last quarter of 2022, with much higher increases in components such a fertiliser, fuel and chemicals.
“Animal feed prices also remain at record levels,” the BFAP said.
It noted the impact of increased frequency and duration of load shedding.
“This affected production processes of the more intensive industries such as poultry and dairy as well as irrigation of crops, orchards, and vineyards. Through the value chain, it influenced timing and throughput of product at packhouses, processing facilities and cold storage facilities.”
Despite the poor sector performance, the gross value of production (GVP) of animal production grew by 13% in the quarter – a 26% rise for pork, a 19% rise for poultry and a 9% rise for beef.
“Poultry production volumes however declined, largely due to prolonged cost pressures, as well as persistent load shedding that affected slaughter schedules in December, resulting in supply challenges to some food service outlets,” the BFAP brief stated.
Inflation rises as confidence drops
South Africa’s inflation rate – including food inflation – is rising, and consumer confidence is dropping rapidly, recent statistical surveys show.
But there’s light at the end of the tunnel, says the Bureau for Economic Research (BER) – food prices should peak this year and the long-term food price outlook is more favourable.
In the short term, however, problems remain. Inflation, as measured by the Consumer Price Index (CPI), rose to 7% in February, from 6.9% in January, ending a three-month drop. Statistics SA says the increase was driven by higher food prices – food and non-alcoholic beverages rose 13.6% over the year to February, up from 13.4% in January.
While food inflation is dropping globally, according to the world Food Price Index, South Africa’s food inflation has reached a 14-year high.
“Meat inflation continues to accelerate, reaching 11,4% in February from 11,2% in January. This is the highest annual increase for meat since February 2018 (also 11,4%),” StatsSA reported.
South Africa’s electricity woes and the rising cost of living are behind the plunge in consumer confidence to near-record lows.
The latest FNB/BER Consumer Confidence Index showed consumer confidence down at -23 in the first quarter of 2023, the third lowest reading since the country became a democracy in 1994. Economists said the plunge indicated extreme concern about South Africa’s economic prospects and their household finances.
South Africa’s troubles, however, are not nearly as bad as those facing consumers in neighbouring Zimbabwe, which has the world’s highest inflation rate.
Farmer’s Weekly reported that the World Bank kept Zimbabwe top of the list in February 2023, despite inflation there dropping to 92.3% from 229.8% in January. It reached an 18-month high of 285% in August 2022.
How SA’s foreign policy can affect trade
Trade advisor Donald MacKay has warned that South Africa’s apparent support for Russia, despite its invasion of Ukraine, could affect South Africa’s exports to the United States, the European Union and Britain.
Mackay says South Africa’s foreign policy has become pro-Russia “and no one thinks we’re non-aligned” as the government claims. South Africa’s stance on the war in Ukraine is being closely watched by Ukraine’s allies, particularly the US and the EU.
“The EU, the biggest economic bloc in the world, accounts for 22% of our exports and the USA, the world’s biggest single economy, accounts for 9%. Add the UK (7%) and we export 36% of everything to those three regions. Russia accounts for 0.23%.”
South Africa’s trade with those regions could become gradually more difficult. Mackay says South Africa’s huge benefits under the Agoa trade agreement could be reduced when it comes up for renewal in 2025. In a worst case scenario, South Africa could be expelled and lose all benefits if a Republican becomes US president in 2024.
Trade with the EU could also become more difficult, despite the protection given by the EU-SA trade agreement. “We may find it takes very long for the newly negotiated improved access to things like wine to materialise. And expect more varieties of the false coddling moth problem, which currently plagues our citrus industry, to persist.”
MacKay’s warning comes just as South Africa’s poultry industry is gearing up to export chicken to the EU. Approvals are awaited for cooked chicken exports, and more difficult negotiations lie ahead to secure access for raw chicken breasts, which command premium prices in the EU.
When “meat” is not meat, what do you call it?
As alternative meats, both laboratory cultured and plant-based, increase in popularity, the world has no clear definition of what these “meats” are, or what to call them.
The United Nations Food and Agricultural Organisation (FAO) believes that until a clear definition can be agreed on globally, these products will be difficult to police under food safety legislation.
While discussions are ongoing and legislation must be clarified by each country, the FAO has suggested that the term “cell-based foods” be used for food made by cultivating animal cells in a tank, but does not require livestock or poultry to be killed.
FAO food safety officer Masami Takeuchi said proper discussions around the safety of these products could not take place if there was not agreement on what they would be called, Farmer’s Weekly reported.
There were a range of names in play, including artificial, lab-grown, fake and clean meat. Takeuchi noted that some carried value judgements, while other terms such as “cultured” or “cultivated” could create potential confusion with existing products such as farmed fish or seafood.
“Another challenge is that several of the terms need to be used as qualifiers before the word meat to avoid being too vague. That can give rise to questions about whether the product needs to be regulated as meat. This comes with all the religious or other requirements that this type of food brings with it in some countries. How do these new foods fit into halaal and kosher dietary rules, for example?”
South Africa’s Department of Health published draft regulations earlier this year relating to the labelling and advertising of foodstuffs. This included legislation on alternative protein products, which stated that products containing less than 25% meat may not be called meat.
Vegetarian products carrying the word “meat” were abundant in South Africa, and court cases were ongoing between the red meat industry and vegetarian interest groups. Louis Visagie, CEO of the Food Safety Agency, said a lack of legislation left many loopholes that placed food safety at risk.
“We have no problem with plant-based protein products, but they should be labelled and marketed correctly.”
