Big increase in chicken prices expected

A resident of Msawawa, Cosmo City holds up a live chicken while donated food is being delivered by wheelbarrows, 28 May 2020, as part of a food donation operation organised by the Mahlasedi Foundation and Kazang during the coronavirus pandemic. Picture: Michel Bega

Poultry prices have increased due to the exchange rate weakening just before the start of lockdown and new poultry import tariffs that were gazetted in March.

It’s no secret that South Africans love their chicken, and poultry is one of the more affordable sources of animal protein – but enjoying a bucket of fried chicken is becoming costly.

Dr Sifiso Ntombela, chief agricultural economist at the National Agricultural Marketing Council, attributes the increase in prices to the exchange rate weakening just before the start of lockdown and new poultry import tariffs that were gazetted in March.

Import tariffs on frozen bone-in chicken portions rose from 37% to 62% (a 25% increase), while those on frozen boneless portions jumped from 12% to 42% (up 30%).

The tariff escalation limited the availability of cheaper imports in the country, says Ntombela.

This serves to protect the domestic poultry industry from the importation of cheaper poultry products from global competitors. However, local producers were hit by the exchange rate. As Ntombela points out: ” … the devaluation of the rand impacted the cost of inputs used in the chicken industry such as soya oilcake.”

Disruptions in domestic and global agri-food supply chains caused by Covid-19 regulations also limited the processing and distribution of chicken, which contributed to the price acceleration and threatened households’ ability to access the meat.

Lockdown dampened demand

According to Izaak Breitenbach, general manager of the Broiler Organisation at the SA Poultry Association (Sapa), the lockdown created an approximate reduction in demand for the meat of 18% under alert Level 5 and of 13% under Level 4. At present, it is down by 7%.

This is mainly due to restaurants being closed and consumers having fewer takeaway meals during this period.

Based on the graph below, in real terms, the prices of fresh and frozen chicken per kilo are materially down from before lockdown.

Monthly broiler producer price (as recorded in May), 2014 – 2020

Source: Sapa

In May 2020, the monthly broiler producer price decreased by R0.09/kg (0.4%) to an estimated R21.69 per kg. Compared with May 2019 the monthly broiler producer price decreased by 4.2% (R0.95) year-on-year.

“The overall monthly price [as recorded] in May 2020 is the result of an insignificant decrease in the producer price of frozen chicken and a slightly larger drop in the price of fresh chicken,” Sapa says.

The overall monthly price of R22.89 (as at May 2020) is down 0.4% from the R22.99 of the year prior.

Individual quick freezing (IQF) chicken prices were up 5.6% in May 2020 compared to May 2019, but are now declining. The price of sundries such as livers has declined by 2.5% compared with 2019 and is still lower than at the same time in 2018.

However, the decline that broiler producers saw in their costs was not evident in consumers’ wallets – the price of poultry continued to increase.

Poultry retail price

Source: Sapa

While prices have remained at relatively softer levels based on the May data for the broiler producer prices, the trend will most likely increase in the upcoming months, meaning that consumers in the near future will continue to pay higher prices for poultry.

There were increases in the prices of frozen and fresh poultry in the week of August 28, according to data producer Agricultural Market Trends (AMT), which can mainly be attributed to a higher month-end demand which caused lower carryover stocks.

Easing of lockdown regulations sees demand rise

Based on AMT’s data, fresh and frozen as well as IQF poultry prices showed upward trends during August, rising 8.6%, 3.5% and 0.2% respectively, as the lockdown regulations eased.

However year-on-year prices averaged 6.2% lower.

Ntombela says the decline in retail sales and by food producers can also be explained by a decline in income experienced by many households during the lockdown.

“The impact of lockdown as an isolated factor is minimal in the agricultural sector because the regulations allowed the sector to continue operating,” he says. “Interruptions in some processing facilities had some impact but they were insignificant as compared to the impact of increasing costs and tariff escalation.”

This article first appeared on Moneyweb and had been republished with permission.

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