Astral Foods Faces Unprecedented Loss Due to Bird Flu and Loadshedding

Astral Foods, one of South Africa's leading poultry producers, has faced a devastating financial blow as it reports the first loss in its 23-year history. The perfect storm of challenges, which includes the most severe outbreak of avian influenza to hit the country and a grueling battle with loadshedding, has led to a dramatic earnings decline, stripping R2.1 billion from the group's profits in 2023.

Chris Schutte, CEO of Astral Foods, in a recent interview with Bruce Whitfield, detailed the impact of the calamities that befell the company. Astral Foods, which is an anchor in the South African poultry industry, saw its operating profit plunge by 143%, amounting to a loss of R621 million. This stark figure is largely traceable to loadshedding and water disruptions, in addition to exorbitant bird flu-related expenses.

The bird flu outbreak, described as the worst ever encountered, struck a severe blow to Astral's operations by decimating 40% of its breeding stock. Millions of poultry animals had to be culled to contain the spread of the highly pathogenic virus. This not only reduced production but also resulted in an alarming decline in sales volumes of 9.6% in the company’s main revenue-generating Poultry Division.

On the other hand, the Feed Division saw an increase in revenue by 11.9% to R11.6 billion, due to the surge in feed selling prices prompted by a hike in raw material costs. The spike in production cost was a direct consequence of the exceptionally expensive raw materials that form 70% of total production costs, as Schutte pointed out.

However, the elevated revenues from feed could not counterbalance the losses in the Poultry Division, which experienced a dip of 0.8% in revenues, amounting to R15.8 billion. The Feed Division's slight increase in sales volumes by 1.1% is a testament to the complex challenges the company has been grappling with, amid heightened internal requirements for broiler feed due to loadshedding induced slaughter programme backlogs.

The poultry processing was hampered significantly by inconsistent power supplies, creating a backlog that forced broilers to stay on farms longer than intended. Consequently, birds reached older ages and heavier live weights, directly increasing production costs.

Taking all these factors into account, Astral Foods has had to confront not only operational disruptions but also financial hardship. The inability to offset these added production costs in the market price of chicken has resulted in catastrophic financial statements for the company, which is now faced with the arduous task of recovering from such an extraordinary loss.