In the middle of October, South African shoppers found themselves standing, confused and disorientated, in front of empty shelves where trays of eggs used to be. Videos went viral of people giving gifts of eggs with captions like “my man spoiling me”, others of people staring, dumbstruck, at the soaring price tags of eggs.
Reuben Beelders, chief investment officer of fund manager Gryphon, sent out a note to clients lamenting “new levels of insanity” in the world, as “we welcome a new asset class: eggs”.
This is the unprecedented fallout from an avian flu epidemic which has raged across the country, leading to more than 8.5-million chickens being culled — or more than one-in-five hen-laying and broiler chickens.
It is, as the country’s largest chicken meat producer Astral Foods put it, “the worst flu outbreak that South Africa has witnessed”. And it’s an outbreak which cost it more than R220m in its financial year to the end of September.
RCL Foods, which owns Rainbow, said that by the end of September, it had to cull 410,000 chickens — costing it R115m. “It is essential to acknowledge that there is tension in the supply chain,” it said.
That’s no joke. Last week, KFC shut down all of its outlets in Lesotho, saying “our supply chain has been severely impacted” after all chicken imports from South Africa were banned.
As it is, fast food outlets including KFC, Nando’s and Chicken Licken sell about 4.1-million chickens in South Africa a week. All of them remain tight-lipped about how this outbreak is hurting them.
“The situation remains fluid,” says Darren Hele, CEO of Famous Brands, which owns Steers and Wimpy among other chains.
The good news, experts contacted by the FM for this article agree, is that fears that South Africans should brace themselves for a chicken-less Christmas are overblown; the bad news is, you shouldn’t bargain on a side portion of eggs.
That’s because poultry farmers are still awaiting the green light to begin vaccinating millions of birds, while hoping that a hot summer will break the speed at which the H7N6 avian flu strain is killing chickens.
“There’s an egg shortage — not a broiler shortage,” Astral Foods CEO Chris Schutte tells the FM, using corporate shorthand for the birds.
This is a significant comfort because South Africans rely on chicken meat, more than any other, as their main source of protein. In all, more than 28-million chickens are consumed every week, or 1.4-billion chickens a year. That’s 37.4kg of chicken for each person annually — more than double the consumption of beef (16.1kg), pork (5.9kg) and mutton (2.8kg), according to data from the umbrella body, the South African Poultry Association.
Retailers confirm Schutte’s view. Shoprite, Africa’s largest retailer, told the FM: “We are not experiencing a shortage of chicken [meat].”
But eggs are just as sought after as chicken: on average, every South African eats 128 eggs a year. In total, that’s 7.9-billion eggs — a big business now under siege from the bird flu.
The Pietermaritzburg Economic Justice & Dignity research group says that egg prices have risen 19% in the past month — contributing to the 10% annual rise in a household’s estimated monthly food basket, which now costs R5,297.
Bakeries, restaurants, and fast food outlets aren’t happy either.
“After baking scones for a client yesterday I was left with three eggs. I went shopping to find more but the price was too much for me,” Zamapholoba Ngcobo, a bakery owner in Pietermaritzburg, told the BBC.
Most contagious strain
This may be the worst incident of bird flu in South Africa yet, but poultry producers have been battling sporadic outbreaks for the past six years.
In 2017, 2.5-million chickens were destroyed due to an outbreak, says Izaak Breitenbach, general manager of the poultry association. And in 2021, chicken farmers had to cull another 3-million chickens.
This time, the quantum of chickens that have had to be culled exceeds both those large outbreaks combined.
“This time we had to cull 8.5-million chickens,” says Breitenbach. “Of those, 6-million were parent stock for layer hens (producing table eggs) and 2.5-million for broiler parent stock (producing eggs for broiler chickens).”
That leaves huge gaps in the country’s parental chicken flock. But how did this happen in the first place? And what can be done?
This particular H7N6 chicken strain of avian influenza is something entirely new, which mutated in South Africa near Delmas, says Shahn Bisschop, senior lecturer at the University of Pretoria, and specialist poultry veterinarian.
“There isn’t a treatment as such,” says Bisschop. “This is a highly pathogenic virus which means that a very large proportion of the chickens exposed to it will die — say about 80% — and the surviving birds will develop immunity.”
The only real intervention is to vaccinate birds before they become sick, boosting their immunity, and hopefully keeping the mortality rate in check.
This H7N6 strain is “a uniquely South African” one, says Bisschop. “We’ve found this strain to be more contagious than the H5 which spread in 2017 and 2021.”
Breitenbach says that because this H7N6 strain spreads far easier among birds than previous strains did, culling birds isn’t as effective as it was in 2017 and 2021 when it comes to halting the spread.
Albie Esterhuizen, CEO of CC Chickens in the Free State, told City Press last week of an “explosion” of cases. “The disease is so contagious that here in Kroonstad, a farm was infected by bird flu from another farm 100km away,” he said.
Another chicken farmer, who had to slaughter 30,000 of his 200,000 chickens, told the newspaper: “I don’t think people understand what farmers and their staff are going through.”
And yet there is light at the end of the tunnel: vaccines.
Until two months ago, you weren’t allowed to inoculate chickens in South Africa. But after lobbying from the industry, the agriculture department gave the green light to a programme of vaccinations.
Bisschop says the industry and government are now thrashing out the details of this vaccination protocol — and the mechanics of how to inject millions of chickens. However, only after that has been agreed will the hunt for the actual medicine begin.
“No vaccine against the H7N6 strain has been registered yet,” says Bisschop. “And the early proposals for a vaccination protocol seem difficult for some farmers to put in place.”
Still, even without the vaccine, Breitenbach says there are signs that the flu is diminishing.
“We’ve seen the peak in infections at the end of August, the start of September, with 17 notifications [from farms] a week. Over the past three weeks, notifications of outbreaks averaged about two a week and last week it reduced to only one.”
But the low rate of notification may also be due to “there not being any chickens left to infect in Gauteng”, the epicentre of the outbreak, says Breitenbach.
In any case, most of the damage has already been done, especially to the population of chickens which lay table eggs.
Bringing eggs with Boeings
As bracing as it is to see signs on shop shelves saying “maximum six eggs per customer”, the truth is that South Africa’s table-egg-laying flock was under pressure even before this flu arrived.
The flock of layer hens for table eggs had fallen to 25.2-million chickens by June, the lowest since 2018. There are a number of reasons for this, including the fact that farmers were breeding fewer chickens, since selling prices haven’t been keeping up with feed costs, as well as the burden of earlier bouts of flu.
The upshot, says Breitenbach, is that eggs are likely to remain in short supply for more than a month. If anything, the crunch will ease only in mid-December.
This isn’t good news for egg producers such as Quantum Foods, or for retailers.
As Shoprite told the FM: “We continue to work closely with our egg suppliers, securing as much stock as possible and utilising our supply chain to transport it to regions experiencing shortages.”
Unlike chicken meat farmers, egg producers have fewer options to mitigate the impact of the sudden loss of millions of birds.
Due to the recurring nature of bird flu among South African chickens, the broiler industry was prepared for the outbreak of the H7N6 strain.
Take Astral, the country’s largest poultry producer. It is responsible for more than a fifth of broilers. “We started making plans back in 2017 with the first outbreak of the [then] H5N8 strain,” says Schutte.
The first “lever” that Astral pulled was to create an “egg bank”, Schutte says.
“We took eggs from the farms and deposited them in the egg bank, thereby building a buffer. Remember, if you lose one laying hen, you lose one [marketable] broiler in 34 days’ time. With the egg bank, we delayed the losses of broilers.”
To mitigate the squeeze, Astral is also extending the period of their laying hens’ production, from a maximum of 61 weeks to 68 weeks.
“Under normal conditions, having a broiler hen laying for more than 61 weeks isn’t economic for us,” says Schutte. “Now we have an additional stream of eggs for broiler production.”
Third, producers are now even importing eggs from abroad. Astral, for instance, got two of its hatcheries to be given permits as quarantine sites to receive the eggs.
“We’re bringing the eggs in with Boeings,” says Schutte. “We’ve been importing eggs from Brazil over the past three weeks.”
According to Breitenbach, about 86-million fertile eggs are on their way to South Africa over the next couple of months to ensure uninterrupted broiler production.
Cost crunch
But as chicken producers take emergency steps and stockpile products, this has pushed them into the red — bad news for investors in these companies.
“All these interventions cost money,” says Schutte. And poultry producers have been struggling to pass input cost price hikes through to consumers.
On Tuesday, Astral told shareholders that for the year to September, it expects earnings per share to fall by between 145% and 155%, though it said it still had “sufficient liquidity and solvency”.
It’s little wonder, when you throw in the R220m cost from bird flu onto the R1,9bn which Astral had to pay to mitigate rolling blackouts at its farms. And it’s reflected in Astral’s share price — down 17% in a year.
RCL Foods, which owns Rainbow chickens (a 64-year-old business), has seen its share price tumble 25% in a year.
“The industry has been operating at a loss since at least January,” says Breitenbach.
Despite the shortage of eggs, and rumours about a pinch in supply of chicken meat, producers haven’t hiked the prices of chicken — in part, because South African consumers are in such a weak financial position.
“Chicken [meat] prices didn’t go through the roof as some reported,” says Schutte. “It’s simply not true. We didn’t negotiate price increases with any of our customers.”
Those shortages that do exist, he says, are due to delivery issues. And in December the seasonal issues with deliveries are likely to crop up again.
“For 40 years I’ve got calls due to so-called shortages,” says Schutte. “And they’ve all been due to logistics.”
But, with South Africa’s worst epidemic of bird flu, it’ll take some special resilience for the embattled poultry companies to pull through.
Rumours of a looming chicken shortage have shone the spotlight on just how permissive South Africa should be when it comes to imported meat.
Trade, industry & competition minister Ebrahim Patel is considering granting rebates on import duties for chicken, partly due to fears of a chicken meat shortage. It’ll put further pressure on local producers battling to keep their heads above the tide of load-shedding, and now avian flu.
“We don’t foresee a shortage,” says South African Poultry Association GM Izaak Breitenbach. It’s a view he has communicated to Patel.
“If rebates are given on duties, the positive effects for the importers will only realise when the influenza has run its course.”
For a similar reason, Astral CEO Chris Schutte argues “we don’t need to [give the rebate] on import duties”.
They argue that the government’s poor understanding of how the local poultry industry works, and how this affects South Africa’s manufacturing industry, has led to a situation where 22% of the country’s chicken meat is now imported.
South Africa’s largest poultry producer, Astral Foods, now has the same market share as imports. This implies, it says, that at least 12,000 direct jobs (excluding those of contract chicken farmers) have been exported, since that’s how many people Astral employs.
One reason why imported “brown meat” chicken cuts (mostly from Brazil) lands up on local grocers’ shelves is that local poultry producers face a barrage of issues their overseas peers don’t have to contend with.
For instance, the price of maize, the largest expense in producing poultry, has been high for a while. Between January 2020 and today, the price of yellow maize has jumped 50%, from R2,556 a ton to R3,843.
The wholesale price of diesel, another vital farm input to keep generators running amid rolling blackouts, is now R24.40 a litre compared with R17.23 two years ago.
This places pressure on local poultry producers’ margins.
“Remember, the government isn’t reimbursing the farmers who culled their chickens [to prevent the spread of avian influenza],” says Breitenbach.
— The import of imports
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