A Closer Look

Loadshedding. Is the Power Paucity Promoting the Poultry Pinch?

Loadshedding – South Africa’s Poultry Pinch – a blip or a blizzard?

It was the worst possible news for the start of 2023:  fast food outlets across South Africa were forced to close their doors due to a chicken shortage that affected the availability of items on their menus.  On top of that, poultry producers warned of ongoing shortages and precipitous price rises in the months to come.

 The main reason cited was the prolonged loadshedding that cut off power to industries for up to 12 hours a day, for weeks on end. The disruption to the agricultural and industrial supply chain has been catastrophic.

But food inflation and shortages cannot all be laid at the door of loadshedding.  Rolling blackouts have just added another layer of disaster on top of an already-struggling industry.  Eskom’s erratic power has been the latest headwind added to a perfect storm of problems that have hit the agricultural sector, the retail sector, and the entire food production and supply chain.

These problems have been gaining momentum for years:  to quote Ernest Hemingway, slowly at first, then all at once.  And the systemic nature of the problems means that there is no quick fix.  Rising prices and food shortages are going to be with us for quite some time.

Loadshedding

There has been load-shedding before, most noticeably in 2015 when we had more than 100 days of low-level rolling blackouts.  In 2022 and 2023, however, there have been more than 200 days of blackouts at much higher durations than ever before.

There was not enough power to recharge batteries, freezers defrosted, machines stood idle for almost half of their productive hours, water pumps stopped supplying water, staff was sent home, businesses closed, and productivity slowed.

Unfortunately, there are some things that cannot be delayed or rescheduled:  crops and animals keep growing, people need to eat, food continues to spoil, and life continues whether there is power or not. The result was huge bottlenecks in food production that caused loss, damage, and waste.

Can poultry imports help bring prices down?  Not really, says Paul Matthew of the Association of Meat Importers and Exporters (AMIE).  We interview Matthew in ChickenBytes podcast, he talks in-depth about the reasons for the current shortages and unpacks the obstacles facing importers.  Many of his insights are contained in our latest podcast.

Crime, Blowouts and Protests

Criminals took advantage of the scheduled outages to steal cables, which led to prolonged outages that affected entire areas.  Electrical surges when the power came back on caused substations to blow up or appliances to short-circuit.  Community protests over the lack of electricity closed access roads and damaged vehicles.

The Fast-food Chicken Shortage

The restaurant industry is a high-volume and high-speed industry with very specific needs regarding chicken.  Almost all chicken used in restaurants and fast food outlets is obtained fresh from South African suppliers, and needs to be slaughtered at exactly the right time.

A delay in slaughtering means the birds need to be fed for longer, which increases their cost of production and causes a bottleneck for the new chicks entering the supply chain.

That is why millions of chicks needed to be culled in January 2023 and the entire production chain slowed down.

Alternative energies

Many businesses that could not afford the prolonged disruptions were compelled to invest in expensive emergency alternatives, such as generators, solar panels and wind generators. Supermarket chains were spending up to R100 million a month in order to keep their stores open.

All of these costs will be passed on to the consumer.

Transport

The transport and freight industries also rely on electricity to keep moving.  Suddenly transport operators were expected to become temporary storage facilities, as their destination facility could not receive their freight because they were closed due to loadshedding.

The stops and starts in production played havoc with transport schedules.

Goods that are temperature-sensitive, or with low shelf-lives – such a perishable foodstuffs – dropped in quality and were sometimes refused by retailers because they had become unsellable.  All of these elements contribute to a slow-down and bottlenecks in supply.

Price of Feed

On top of the electricity crisis, the war in Europe has affected global supply chains so that there are shortages of grain, fuel, fertiliser and sunflower oil.  This has had a knock-on effect on our own agricultural production.  Chicken feed is the single greatest cost in poultry production and the price of feed keeps rising.

The Exchange Rate

Our economy cannot be uncoupled from the rand-dollar exchange rate, as much of our local supply chain depends on resources purchased in dollars from overseas suppliers. The rand has been weakening steadily over the last few years which has made imports pricier.

Municipal Collapse

Any economic activity depends on a functioning local infrastructure such as roads, water supply, security, and waste removal.  A reliable supply of local skills and labour is also vital.

South Africa’s municipal infrastructure is in various stages of collapse, services are sporadic or non-existent, and labour and community unrest is endemic.

This has put strain on South Africa’s production and manufacturing capacity.

Can Poultry Imports Fill the Gap?

The demand for poultry in South Africa will always outstrip supply.

But due to punitive trade tariffs imports have been declining steadily over the last three years.

The quick-service restaurants use only local chicken and the most popular type of chicken for lower-income consumers, the individual quick-frozen chicken portions (IQF) are also sourced locally. Additionally, South Africa has not built up a successful export culture which might bring in revenue, as local producers cannot meet the domestic demand and in some cases cannot meet the health requirements for export.

VAT Zero-rating

Many role players are calling for a VAT zero-rating on chicken, but this would only ever be a short-term solution and has not received a positive reaction from government.

Conclusion

All of these factors coming together at the same time, and at the tail-end of a devastating pandemic, means that your plate of chicken is going to get more and more expensive, with no relief in sight.  Only a fundamental shift in government policy, an end to the war in the Ukraine, a drastic improvement in fundamental services and infrastructure and better governance, will restore chicken’s place as the country’s most affordable and most-loved source of protein.

A summary of this article has been illustrated in our latest factsheet

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