A Closer Look

The Insider’s Perspective – Consumers are Paying the Price

Glen McMaster is an industry veteran, with 22 years experience in the poultry trade. In this piece, the first of an ongoing series, he shares some opinions about the price of poultry. In our introductory item, he introduces an overview of his perspective, with a closer look at different issues every month. The idea is to educate the consumer and give a voice to the sectors in the poultry supply chain that do not often get to the podium

The poultry industry has seen its ups and downs over the last decade with farmers and processors claiming losses due to various factors that include imports, utility hikes, load-shedding, rising labor costs and fuel hikes. Consumers have paid the ultimate price. Now that inflation is driving up the price of their primary protein source, the average household is at breaking point and many are past the point of no return.

The average household in SA with an income of R3000 to R5000 per month has to balance schooling, household requirements, transport and food…..a clear indication of how severe their challenges have now become. The industry is split between farmer, abattoir, distributor, wholesaler and retailer with the Food Service sector in-between. The consumer pays for the end product…

So a good place to start our discussion would be:

What are the mitigating cost drivers?….What determines the price?
  • Overheads
  • Throughput
  • Demand
  • Competition
  • Profit requirements and investor expectations

 

The agri sector has been impacted by so many variables that the one guaranteed controllable variable should be government’s assistance at ensuring growth and sustainability. But I question
government’s involvement and true willingness to support local agriculture: where is the sustained assistance they so often proclaim?

  • Funding for export competitiveness?
  • Funding for natural disasters over an extended period to ensure recovery?
  • Funding for ground up startups with training, facilitation, support and route to market?
  • Where are the programs that assist willing farmers to interact with experienced farmers who
    have knowledge and time in the industry? Where is the proverbial passing of the torch and
    its follow through, ensuring success and longevity.
  • Why are our state veterinary services not more proactive to counter challenges more
    efficiently and swiftly?
  • Job creation is heavily focused on low income positions, so where is the emphasis on
    entrepreneurs that can determine their own income?
  • Tender fraud and irregularities that omit real startups and willing entrepreneurs.
  • Where is the link for informal traders and agri giants to develop new markets?

The above is merely an indication of the array of issues the agri sector faces, their daily plight overwhelming and often unmanageable. I implore you to engage with this sector and understand their business and the lonely path they walk. It can get ugly, and what started off as a passion often ends in loss and disappointment with little or no help.

Distribution and wholesale is the link that binds agri to retail & food service, but this is where the water gets a little murky.

The wholesale and import sectors pricing is often not transferring its benefits to the consumer, with retail profiting higher returns. I find it rather alarming that buy-in prices and selling prices vary from 40% to 100% with abattoirs, processors and distributors sharing 20% to 30% of that total profit line and 80% to 70% going to the retailer. This is the tail wagging the dog!

I do not by any means intend this to be an attack on retailers. Profit is not a sin, it is what drives business just as they have their own costs to bear. But I do detest lopsided earnings and one-sided clout. I feel it is important to share that prices are not determined by input costs as they should, but on demand from end users: If demand is low then buy-In prices are low and if demand outweighs supply then buy-In prices are higher.

How is that sustainable? And who benefits the most out of this equation? I leave you to determine that.


Let’s shed some light and hopefully give some clarity on the disparity between raw material supply and the retailers shelf price:

Wholesale Local Frozen prices as of November 2023 (Injected):

IQF Mixed Portions (6x2kg) @ R28.50 to R30.00
Drumsticks @ R44.00 to R48.00
Leg ¼ @ R35.00 to R37.50
Wings @ R45.00 to R47.00
Thighs @ R30.00 to R33.00
Fillets De-boned/ skin off @ R44.00 to R47.00
Whole Birds 1.3 to 1.5kg @ R32.50 to R34.50

Wholesale Local Fresh prices as of November 2023:

IQF Mixed Portions (6x2kg) @ R35.00 to R37.00
Drumsticks @ R52.00 to R55.00
Leg ¼ @ R38.50 to R42.00
Wings @ R52.00 to R57.00
Thighs @ R33.00 to R36.00
Fillets De-boned/ skin off @ R48.00 to R55.00
Whole Birds 1.3 to 1.5kg @ R35.50 to R38.50

Wholesale Imported Frozen prices as of November 2023:

Drumsticks USA Jumbo @ R28.50 to R32.00
Leg ¼ USA Smalls @ R33.95 to R36.95
Wings Argentinian @ R47.50 to R52.00
Thighs USA @ R28.50 to R32.50
Fillets De-boned/ skin off Brazil @ R48.50 to R55.00

The above is per kg and exclusive of VAT. You can calculate the difference, and remember these are bulk prices, there is a cost to repackaging which roughly equates to R2.50 per kg for standard
packaging.

In closing, I feel it pertinent to share that distributors often massacre one another to retain or obtain business, the cutthroat manner of business often leaving some in the mortuary of debt and
foreclosure. The fight for Cents to the Rand is an unsustainable strategy, making some business successful but also leaving failed businesses in its wake and some amazing people who never
recover.

In future Insider’s Perspectives I hope, dear reader, to enlighten you on how things happen, and I will highlight the unsung heroes of our fickle industry. I will detail how the product gets to you and who is involved and I hope to induce businesses that operate in this sector to share their stories and open the back door that some secrets.

Stay safe, buy well and be wise with your choices.