Celebrating the humble chicken/ A slice of the chicken pie

Insight into the local chicken industry and a fresh look at the poultry category

The poultry industry has seen both successes and challenges in the past 18 months. With import tariffs having increased in 2020, South African producers were given some respite and breathing space. This year, the poultry industry saw a significant increase in feed prices, as well as reduced demand due to Covid-19 lockdowns. Local producers already facing low profit margins are under pressure to increase prices in a cash-strapped economy. It’s a tough balancing act.

However, there are still many positives in the industry. Poultry is the primary supplier of quality, affordable protein to South Africans and there are over a million households in the country engaged in some form of poultry production, mostly on a subsistence level.

Billions are being invested by the industry, government, chicken producers, and other stakeholders to grow jobs in the industry by increasing local production, upgrading large-scale production facilities, and assisting subsistence and commercial scale farmers. With this in mind, it is clear there are many opportunities for growth.

The current landscape

The majority of South Africa’s population relies on poultry to provide animal protein at affordable prices, which is in turn important for national food security. The Poultry Products Prices Monitoring Report by the National Agricultural Marketing Council (NAMC) monitors prices for selected poultry products within South Africa and compares them to the current outlook on the global market.

International poultry prices, chicken imports into South Africa, monthly producer prices, feed prices, and poultry prices at retail level are analysed to provide a clear picture of the domestic poultry price trends within the global market.

The report states that “On an annual basis, the index is 4.6 points higher on average when compared to 2020. Global poultry prices remained steady, but still at higher levels due to the global balance in supply and demand. Demand for other meats, especially bovine meat from East Asia, is putting some pressure on global poultry prices. Also, global pork prices remained firm in April 2021.” These factors had a negative effect on the global poultry-price index. Even though export prices from Brazil looked to be a stabilising influence, these still declined by 0.1%. Overall, the report notes that “Year-on-year, export prices are 8.5% up in the USA and 1.3% up from Brazil.”

Brazil remains a firm supplier of chicken to South Africa, with mechanically deboned meat (MDM), frozen chicken leg quarters, frozen chicken offal, frozen chicken drumsticks, chicken feet, and frozen chicken thighs constituting the largest quantity of cuts imported.

Dumping and the poultry masterplan

The South African Poultry Association (SAPA) has applied for anti-dumping duties on imported chicken. Dumping occurs when larger producers sell their produce at a price lower than the cost of production in their markets or below the price they sell it to their consumers, thus having a devastating impact on market competition. This practice contravenes the World Trade Organization rules as it is unfair towards local producers and stifles economic growth.

The industry is investigating anti-dumping measures with relevant stakeholders in the South African market as well as renewing its focus on the poultry masterplan. According to Poultry World, “The poultry sector masterplan, which was signed by government, the poultry industry, importers, labour representatives, and other stakeholders in November 2019, aims to stimulate local demand, boost exports, and protect the domestic chicken industry. The plan also focuses on feed costs (primarily maize and soya), meeting safety and veterinary requirements, compliance to boost exports, and transformation of the South African sector.

Izaak Breitenbach, General Manager at SAPA says, “The industry has invested R870 million to create markets for 50 black contract growers and to facilitate exports to create local jobs. The industry has also done and paid for business studies for 19 black farmers that are in a programme with the DALLRD (Department of Agriculture, Land Reform and Rural Development). Further training and advice is provided to 40 independent black farmers.”

Avian influenza

The Poultry Products Prices Monitoring Report explains that the current Highly Pathogenic Avian Influenza (HPAI) situation threatens the industry stability if it is not contained. To date, only layer and breeding farms have been affected, with broiler production farms so far having escaped this devastating outbreak. As avian influenza can affect humans and is easily spread amongst birds, the impact of the local outbreak has been significant. The industry is currently working closely with the Department to address the outbreak. Further outbreaks could lead to a drastic reduction of local flocks, adversely affecting production and local prices.

Civil unrest

The civil unrest, looting, and riots which took place in July 2021 caused a great deal of disruption in the poultry sector in South Africa. Farms were reportedly invaded, public infrastructure was destroyed, and businesses suffered supply chain disruptions.

Storage capacity for frozen poultry products became a challenge, says Breitenbach. “The biggest issue in such instances is the potential threat to food security. We slaughter about 5 million birds a day nationally – about 30% of these in KwaZulu-Natal – and those end up in cold storage, but stores were filled to capacity.”

In an article for Poultry World, writer Natalie Berkhout noted that storage and transport of poultry products and feed had been disrupted, causing difficulties at both ends of the supply chain. Henk Alberts, CEO of Henwil Chickens has noticed a lasting effect of the unrest, saying that many of their high-value items couldn’t be sold, resulting in excess stock being placed in cold storage. He noted that as prices have recently increased, it has worked in their favour to some extent, although the additional storage requirements with limited availability also carried cost implications.

Covid-19 and lockdown

The coronavirus has hugely impacted daily life, from the individual consumer to businesses across the spectrum. Of course, the poultry sector has not gone unscathed with increased costs to manage the risks associated with Covid-19 and a complete shutdown in the food service and restaurant sectors during the various levels of lockdown.

The change in demand saw more chicken being channeled to frozen production, resulting in higher stocks of individually quick-frozen portions in the industry and downward pressure on selling prices to the consumer market. A recent government report, the Impact of pandemic on food chains, stated that “demand weakened substantially when the food service industry, which accounts for about 20% of the domestic market, was closed during the lockdown. A substantial share of the demand for poultry comes from quick service restaurants, which have a significant base of take-away clients. This, combined with the inexpensive nature of poultry in the meat consumption basket, supported some recovery in demand levels once lockdown restrictions eased, particularly from alert level 3 onwards. The industry also diverted some of the products that might normally have been destined for quick-service restaurants into the retail market, resulting in lower import volumes year-on-year.”

A change in buyer behaviour has affected the market. Most notably, newly constrained consumers are buying cheaper cuts. For those that can afford it, bulk-buying has increased as customers try to take advantage of better prices whilst also limiting their shopping trips. An increase in at-home cooking and braaing has also changed what consumers put in their shopping baskets, and how often they shop for fresh and frozen produce.

"Since Covid there is no more normal. Previously, you could observe and follow trends, but during this pandemic, things vary constantly and you must think on your feet and be ready to adapt to the market. International travel being limited has hampered the local market quite a bit. Foreign currency is vital in the South African economy but now hotels, guesthouses, and restaurants are operating with only local buying power. With the UK removing us from the red list recently, we are sure that the increased travel will make a tangible difference.” - Henk Alberts, CEO of Henwil Chickens.

Industry innovation

“Consumer trends have driven rapid change in recent years across food”, writes Rob Dongoski, Food and Agriculture Leader at Ernst & Young USA, in an article on verticalisation in food and agribusiness. Due to increased food and health consciousness, consumers display more diverse demands in their consumption, with transparency and convenience top of the list.

To evolve themselves, businesses will have to be innovative in the adoption of leading practices, digital tools, and new business models – one of which is integrating into different areas of the value chain. This combination of multiple stages of the production process leads to better quality control and transparency, reduced costs, and potential increase in market share. Dongoski says, “We’re living in a time of unprecedented change. New digital technologies, along with data and analytics, especially in agriculture, can be both a driver of further vertical integration by allowing leading adopters of new systems to capitalize on newfound efficiencies and may enable new virtual integration opportunities through the adoption of a wide array of digital supply chain technologies across organisational borders. The trend of commercial-scale experimentation is undeniable and has the potential to enable those companies that sell directly to consumers to address the evolving demands of consumers that are consistent with their values.”

Here in South Africa, Henwil Chickens has spent the past three years investing in just such an evolutionary business process. “We have been expanding our value chain by hatching the chicks ourselves to then place them. Producing our own feed, transporting it with our own trucks, then slaughtering, packaging, and selling – all those links in the chain will be internal. We have started building our own feed factory, which will have a large impact on us as we currently buy around a third of our feed. We should be 100% self-sustainable by August 2022,” says Alberts. Through these expansions, Henwil Chickens has ensured consistent supply and controlled cost, as well as optimising the value chain in terms of transportation. The traceability and transparency in controlling all aspects – the sources of feed, the animal living conditions, and the treatment of animals – further offsets the risks related to food safety and quality.

Investing in the latest technology is costly, but the flexibility offered by improved technology and cutting-edge machinery cannot be overstated. As shown by the Covid-19 lockdowns and civil unrest, the poultry industry needs to be able to adapt to market demands. With the market still volatile, and cheap imports and international dumping still an issue for local producers, investing in the future makes sense. 

In an article for Frontiers in Sustainable Food Systems, it was noted that for a large number of South African consumers, price was of more importance than food safety. The Tiger Brands listeriosis outbreak has, however, had a knock-on effect of raising food safety awareness amongst a large number of previously unconcerned consumers. This means that despite the costs involved, large-scale and big brand producers often have a higher level of food safety requirements than those imposed by government as they have a reputation to protect and consumer trust, once lost, is very hard to regain.

Food health and safety and reputation protection are not the only reasons that producers are looking to improve their traceability and accountability. There is a growing number of consumers who expect both from their food producers, as well as sustainability and environmental impact transparency. Animal welfare is also of growing concern to consumers, and this covers everything from living conditions right through to transport and abattoir conditions. Retailers need to be able to provide their customers with transparency and traceability, and this needs to start with producers.

Delicious product development

A recent report by Straits Research indicates that the ‘ready-to-eat meats’ market is set to grow by nearly 5% over the next five years. The poultry products included in this segment are crumbed cutlets, crumbed chicken nuggets, crumbed chicken tenders, turkey or chicken burgers, sausages, and viennas. Of these, crumbed chicken cutlets and nuggets are among the fastest-growing segments in the global market.

Companies are continuously making efforts to improve on flavour and cater to the preferences of their customers, but there are several other major factors driving this market growth. These include changing lifestyles, rising demand for ready-to-eat products, the improvement of industrial meat processing equipment, and the convenience of processed meat products. The report states, “Globally, half of the population relies on meat for regular protein requirements, which is why ready-to-eat meat products are becoming more popular among the consumers in developed and developing countries. As per the estimation of Statistics Canada, Canada spends about USD 12.7 billion (Just over R185 billion) every year on fresh, processed, and frozen meat products.”

Adding tasty value

Across retail categories, the demand for value-added products that meet the consumer’s needs and that pique their interest is growing. Consumers are looking for healthy options with additional benefits. The need for convenience products is also growing as time-constrained consumers who are cooking at home more demand products that make their lives easier. Products that are pre-crumbed or basted, pre-spiced, and quick to cook are all popular. New product launches that take advantage of the consumer trend towards bold flavours, international tastes, and exotic ingredients are gaining strength. From a marketing perspective, new product launches and expanding flavour ranges are good ways of attracting shoppers.

Nando’s at home

Nando’s has extended their product range for retail to add to their popular sauces and perinaises. Backed by the strength of the brand’s name, consumers should be happy to add the new Bag & Bake product range to their trolley. Featuring a sachet of spices for use on chicken, meat, fish or vegetables, the oven roasting parchment bag promises to be an easy solution to spicing up dinnertime, with a quick fix of Nando’s PERi-PERi goodness right out the oven. Appealing to the need for convenience, nutrition, and variety, the consumer is offered an option from a trusted take-away brand that can be prepared in their own kitchen in just 30 minutes.

Vanessa Nunes, Marketing Manager for Nando’s Grocery Division, says, “The best part is you get to play with that Nando’s PERi-PERi flavour in your own home cooking. Whether you like it medium, hot, or with lemon and herb, we are excited to help take the chore out of dinner time while still making it an event to look forward to.”

The range has proven to be overwhelmingly popular since it was released at supermarkets earlier this year. “It turns out South Africans crave the Nando’s flavour they know and love to come right out of their oven at home. Who knew? We are excited to add the Garlic flavour to our range to help fire up an already much-loved PERi-PERi addition to home-cooked meals,” says Nunes.

Hot tips for retailers

• The customer’s focus on convenience means that they shop both at the meat fridges and counters as well as in the frozen aisles and deli. Manufacturers and retailers looking for new production and marketing opportunities could experiment with positioning of products in different locations to take advantage of cross-promotion.
• Being aware of customers’ chicken and meat preparation habits gives retailers an opportunity to call attention to these throughout the store: the focus here is on portion sizes, value-added proteins, blended items, and plant-based alternatives.
• The poultry fridge is a prime spot for retailers to call attention to trendy flavours and protein alternatives, as well as interesting value-added and pre-prepared poultry items that might appeal to flexitarians and other adventurous consumers.
• Showing your customers that you are staying on top of the latest trends could help to attract a wider array of consumers who want to mix it up when it comes to traditional and alternative proteins, as well as flavours.

Sustainability makes an impact

The irresponsible use and disposal of plastic is a growing concern globally. Mpact Plastic Containers (MPC) has partnered with stakeholders to create awareness about sustainability, and also invested in a circular economy model. With on-site recycling facilities and a buy-back or exchange agreement with many customers, they have managed to divert 24 000 tons of plastic from going to landfill over the last 5 years. Their high-density polyethylene (HDPE) and polypropylene (PP) products are 100% recyclable, which means old products can be completely melted down and remoulded to manufacture new products. The entire process follows stringent quality control standards to ensure the end-product meets all quality requirements.

From Egg Setter Trays to protect eggs during transport all the way through to Hatching Baskets, Chick Crates, Chicken Coops, Poultry Freezer Crates and Easi Tray Chicken Crates, the Mpact poultry range is comprehensive, thoughtfully designed, and 100% recyclable. The products are all multi-trip and reusable (Returnable Transit Packaging - RTP), making them a valuable investment for egg and broiler producers. Mpact crates have a lifespan between 10-15 years and at the end of their lifecycle, the products can be returned to Mpact to be fully recycled, increasing the sustainability of both parties and reducing the poultry industry’s impact on the environment.