In its annual statement for the 12 months to 30 June 2016, the food processor reported a 62% EBITDA year-on-year loss in its chicken business unit. Its earnings totalled R158.1m (£8.3m) down from R415.5m (£21.8m) in the previous year.
The business, which also operates in the sugar, grocery, pie and bakery sectors, reported an overall rise of 6.8% in revenue for the year, while EBITDA was down 20.6%.
RCL Foods claims that over-dumping of chicken is the main reason behind the poultry market’s woes.
Miles Dally, chief executive of RCL, said: “The biggest crisis facing the South African poultry industry remains the massively oversupplied market as a result of surplus domestic volumes as well as record levels of dumped imports.”
The oversupply situation has been exacerbated by the African Growth and Opportunity Act (AGOA) between the United States and South Africa which was renewed earlier this year, after protracted negotiations. The renewal of the agreement culminated in an agreed 65,000 tons of US-produced chicken entering South Africa, without anti-dumping duty.
Although RCL Foods supported the renewal of the AGOA for “reasons of national interest”, it warned that the trade agreement was detrimental to both the poultry industry and ongoing job preservation.
“The quota, relative to the total annual poultry consumption in South Africa, is not substantial, yet it is a further source of supply in an extremely oversupplied market. The oversupply is substantially exacerbated by the dumping of the global surplus of leg quarters, a portion of the chicken that is not consumed in the northern hemisphere. Most African countries have banned chicken imports in order to protect their own industries while other countries around the world use non-trade phytosanitary barriers to achieve the same end.”
Dally also said welcomed the work that is being done to address the issue of brining in the sector.
“RCL Foods welcomed the announcement that injection brine in frozen chicken will be capped at 15% from October 2016,” he said. “Currently, poultry manufacturers inject brine up to 43% into frozen chicken portions.
“RCL Foods is supportive of the cap on brine injection because South African levels of brine in frozen portions of chicken are unsupported by science, and excessive injection levels by the larger manufacturers has compromised the integrity of South African chicken and the poultry industry.
“RCL generally injects at least 10% less brine than its nearest competitors. The implementation of the proposed brining regulations will restore trust in the poultry industry, level the competitive playing field and benefit RCL Foods’ competitive position.”
Trading measures
Responding to the end-of-year figures, the company said in a statement it was time to rethink the model for its chicken business, while also calling for action on trading conditions.
“The board is forced to relook at all options in evaluating our chicken business model. The headwinds of low economic growth, a volatile currency, high commodity-input costs and drought impacts are real and understood. However, the strong platform that we are establishing internally for our business will create even bigger and better opportunities for RCL Foods.
“A restoration of normal trading conditions is required for the poultry industry in South Africa to survive.
“The RCL Foods board continues to assess the need for an impairment of assets. A return to adequate profitability is dependent on the local industry returning to relative supply/demand balance, of which the successful implementation of import tariffs is one part.
“An impairment will need to be raised should the supply/demand equilibrium not be restored or, despite the management interventions, should there be no meaningful improvement in the chicken business unit’s profitability.”