Massive oversupplies hit chicken earnings at RCL Foods

The South African food business, RCL Foods, has reported a 62% decline in EBITDA for its chicken business, blaming the downturn on a “massively oversupplied market” partly caused by “record levels of dumped imports”.

While surplus domestic chicken supplies have also had an impact on the company, it says the country’s poultry industry remains exposed to the dumping of leg quarters, prompting it to adopt a new business model for its chicken division. This has resulted in a move away from the consequential commodity chicken market where most imports (i.e. dumped chicken) are targeted.

“Without this action, the oversupply in the market would have been even greater and the impact on profitability more severe,” said RCL’s chief executive, Miles Dally.

The company’s financial report for the year to June 30, 2016, also includes comment on the African Growth and Opportunity Act (AGOA) trade agreement between the United States and South Africa, which was renewed in January this year, after a protracted period of negotiations. This maintained the freedom for African products to be exported to the US and vice-versa.

“The renewal of the agreement ultimately hinged on the lifting of the anti-dumping duty on chickens from the US and culminated in an agreed 65,000 tons of US chicken into SA, without anti-dumping duty,” said RCL, adding that while the company supports the renewal of this trade agreement, for reasons of national interest, the deal is still “detrimental” to the SA poultry industry.

“The US quota, relative to the total annual poultry consumption in South Africa is not substantial, but it is a further source of supply in an extremely oversupplied market.”

In terms of the EU knock-in impact from AGOA, the RCL report revealed that the company is currently working closely with the International Trade Administration Commission (ITAC) to help restrict imports, including making an application for a 37% import tariff on EU bone-in chicken products.

EBITDA stands for earnings before interest, taxes, depreciation and amortization.

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