Business Maverick

BUSINESS REFLECTION

After the Bell: Now for the important stuff — big chicken

After the Bell: Now for the important stuff — big chicken
Chickens. (Photo: Unsplash / Brett Jordan)

It’s hard to overestimate the importance of SA’s chicken industry — it’s an industry in itself and also consumes almost half the country’s maize crop. Just under a billion chickens were slaughtered last year and the industry supports about 100,000 people through the value chain.

There has been a lot of talk about politics recently. We need to put that aside for a moment and discuss important issues, like big chicken!

The reason is that come hell or parliamentary walkouts, Rainbow Chicken is unbundling out of RCL Foods on 1 July and I had a conversation on Tuesday with the MD of Rainbow, Marthinus Stander. Even in a moment of high political drama, the eating of chicken apparently must go on.

There are many aspects to this unbundling; Rainbow’s turnover consists of about a third of RCL’s total turnover, with the most obvious consequence being that we will now have SA’s two biggest chicken producers, Astral and Rainbow, as listed entities. There is no capital raising in conjunction with the unbundling and it’s good to see RCL’s share price moving up in advance of the listing. That suggests investors are buying into the logic of unbundling.

I asked Stander to walk through the reasons and he said it was to give investors a pure-play opportunity and to free RCL from the commodity cycle. RCL is much more of a branded food company and Rainbow is much more linked to the commodity cycle. RCL will concentrate on branded goods, while Rainbow will concentrate on being farmers and processors.

Rainbow will be head-to-head with Astral, and earnings for both can and will be volatile. I asked Stander about that volatility and he said that although there are things that can’t be controlled, you can set yourself up with a better chance to face whatever comes your way, whether it’s declining services or bird flu, commodity pricing, or whatever.  He says the way to do that is really to focus on the “‘engine room’ — the part where we grow the generations of chicken, we feed them, we form them, we produce eggs, we hatch them, and so on. 

“So for us, really the best defence is to get that engine room as healthy as possible.” That means focusing on key performance indicators and making sure everything points towards a lower cost. He says the two other aspects are branding and finding the best customers.

“We’re very fortunate with iconic brands such as Rainbow, Farmer Brown and Simply Chicken.” A big part of Rainbow’s business is supplying fast food outlets: if you eat at Nando’s or Kentucky, there is a good chance you are eating Rainbow chicken.

Worldwide expansion

The chicken business around the world has been expanding rapidly, and it’s easy to see why. Chicken is a very versatile, cheap protein. Chicken is considered a complete protein because it contains all nine essential amino acids. The mechanics of producing chickens are also improving all the time. Stander says over the past 30 years, the time it takes to go from zero to chicken (I am not making this up) has decreased from about seven to five cycles a year. That means, a new batch of chickens every 50 days. A lot of that is because of better feed tech and genetically better chickens.

With that production increase, the global chicken market has become extremely complex and very competitive and the global winner here has been, hands down, Brazil. People tend to think of Brazil as predominantly tropical forest vegetation, but a huge part of the country is made up of savannah and gradually Brazil’s maize and soya crops have been increasing. Both are major components of chicken feed. 

I asked Stander if SA could ever be competitive with Brazil on the chicken front and he said academic studies show SA is technically competitive, even now. All in, SA usually ranks somewhere in the top seven in the world and has been as high as fourth. 

However, there are a couple of problems, he says. South Africans like to eat the brown bits, mainly the thighs and drumsticks, often on the bone. These are less popular almost everywhere else in the world, where breast meat is the most prized. That means SA is a big “dumping ground” for these chicken parts. At the same time, SA struggles to export into Europe not because of price but because of a lack of phytosanitary guarantees. That’s normally the task of the government, which they haven’t been doing very well.

We need more from our Department of Agriculture. So I think our best bet and our real reason for being is to try to supply South Africans with the cheapest possible chicken and export strategically.”

It’s hard to overestimate the importance of SA’s chicken industry — it’s an industry in itself and it also consumes almost half the country’s maize crop. Just under a billion chickens were slaughtered last year and the industry supports about 100,000 people through the value chain. It’s the “dynamo” of the agriculture industry, says Stander.

I asked Stander about unbundling and listing during a political crisis and he said there were concerns, but: “I’m also pretty confident we’ll eat chicken until somebody switches off the lights one day. It’s a beautiful product to be involved in. People love chicken, whether they have a live chicken or a piece of chicken that they can go and cook, or roast, or fry, or grill, or eat as a burger,  pizza topping, sandwich filling. It’s a beautiful product. So I guess the demand’s always going to be there and you must just find ways to continue to be profitable, irrespective of the political landscape.” 

Amen to that. DM

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Comments - Please in order to comment.

  • Alexis Kriel says:

    I hope that with increasing awareness, conscious people will cut down on their consumption – preferring to eat real free-range chicken, (more expensive, but less often), removing themselves from an association with animal welfare issues, and mass agriculture that grows chickens as cheap as possible – saturated with hormones for chick to adult production within 6 months. It is a ghastly industry. Just under a billion chickens slaughtered last year isn’t something to be proud of.

    • Alan Watkins says:

      “Chick to adult production within 6 months” or 182 days

      In the article above MD of Rainbow, Marthinus Stander, claims 50 days

      • Malcolm McManus says:

        Which would explain why a chicken would have fed a whole family when I was young and now you would do well to feed 2 people with the average size chicken available on most supermarket stores shelves these days.

  • Malcolm McManus says:

    I imagine over the last few months, if Kentucky buys from Rainbow, then business must have been very good this quarter. With elections, the ANC,EFF and MK trying to fill stadiums. Chicken sales and electioneering with these dudes go hand in hand.

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