Rising oil prices adds to SA’s avian flu woes: Difficult time ahead for poultry, egg industry

The South African poultry and egg industry faces an ominous combination of challenges as it grapples with the devastating avian flu outbreak and now also surging global oil prices.

These twin crises are casting a shadow over the sector’s future, threatening supply stability and potentially impacting consumers’ wallets.

Avian flu outbreak

According to Paul Makube, Senior Agricultural Economist at FNB Agri-Business, the latest reports from the poultry industry have sent shockwaves through the nation as it battles the relentless avian flu outbreak.

With the country already dealing with the constant threat of load shedding, producers have been left with no choice, but to incorporate generators into their operations, further squeezing profit margins.

Current estimates suggest that approximately 20% of South Africa’s poultry flock has been culled due to the avian flu outbreak.

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Makube says that if the situation persists, this grim statistic may continue to climb, potentially leading to dire financial consequences for producers already grappling with financial strains.

As if the avian flu crisis weren’t enough, South Africa’s poultry and egg producers now face another formidable challenge in the form of soaring international crude oil prices, Makube explained.

He said that the resurgent Brent crude oil price surged by a staggering 7.5% month-on-month in August 2023, reaching a high of US$90 per barrel.

“These escalating oil prices are set to exert upward pressure on fuel costs, pushing up the overall cost of production for poultry farmers.

“The concurrent reduction in bird numbers due to the avian flu outbreak will result in diminished incomes, posing a real threat of financial ruin for many industry players,” Makube said.

Consumer impact and food inflation

For consumers who were hoping for a respite from rising food prices, the situation is grim.

Makube confirmed that the poultry industry, already struggling with cost recovery, may need to incorporate a 9% price hike into its products going forward, according to industry insiders.

“This unwelcome development promises to put upward pressure on food inflation, which had seen a modest decline from its peak of 14.4% year-on-year in 2023 to 8.2% year-on-year in August 2023,” the agriculture economist said.

Eggs, in particular, are expected to face immediate supply imbalances due to these ongoing challenges. The demand-supply equilibrium for eggs is likely to be disturbed, resulting in price increases in the medium term.

READ MORE: Warnings of further spike in egg prices, as SA loses more than a quarter of supply

On the other hand, Makube said, broiler production currently maintains sufficient stock levels as the festive season approaches.

“However, concerns arise for 2024 if the avian flu outbreak remains uncontained.

“While South Africa can fill domestic shortfalls through imports, these may come at a premium cost due to exchange rate depreciation and the recent implementation of hefty anti-dumping duties on chicken meat,” he said.

 These duties are applied to imports from Brazil (265% in addition to the existing 62%) and several European countries, including Ireland (158.4%), Poland (96.9%), Spain (85.8%), and Denmark (67.4%).