CAPE TOWN, SOUTH AFRICA — The disruption of the global grain supply chain largely due to the Ukraine-Russia conflict has impacted the feed industry in many countries with South Africa reporting a net effect of high prices due to the high cost of corn and oilcake, the main raw materials in the manufacture of animal feed.

Feed manufacturers in South Africa have been forced to adjust their feed prices upwards in response to the increasing cost of raw materials, according to a report by the Animal Feed Manufacturers Association (AFMA), the association that represents South Africa’s animal feed industry.

The report, which analyzes the performance of the feed industry for AFMA members for the 12 months through March 2022, said high prices, especially of corn and oilcake, posed a major challenge to South Africa’s animal feed business as did animal diseases.

“While recovering from the disruptive effects of COVID-19 during the past two years, the grains and oilseeds value chain was dealt an additional blow with the Russian invasion of Ukraine, which added pressure to an already challenged value chain,” said De Wet Boshoff, AFMA’s executive director.

The Competition Commission of South Africa said in its March 2023 Essential Food Price Monitoring report the “price of grains for producing animal feed has been a significant source of upward pricing pressure in the feed-to-poultry value chain.”

The prices of grains and oilseeds in South Africa, like in many countries, are referenced on the Chicago Board of Trade (CBOT), with the country’s Johannesburg Stock Exchange using the CBOT to determine at what price animal feed millers can access the raw material.

Although AFMA has not provided precise figures showing the correlation between the increase in raw material prices and animal feed prices, the association says global feed demand “is the most significant driver of feed commodity prices.” 

Elsewhere, the Competition Commission of South Africa said in its March 2023 Essential Food Price Monitoring report the “price of grains for producing animal feed has been a significant source of upward pricing pressure in the feed-to-poultry value chain.” 

“The shrinking spread also suggests that feed manufacturers may have absorbed the increase in raw materials instead of passing it through to their customers,” the report said.

Raw materials for feed production are an important element of price formulation throughout the feed-to-poultry value chain because they account for approximately 85% of the total cost for feed manufacturers, according to the commission.

“The potential effect of feed costs on the end price of chicken may also be worsened by the degree of vertical integration throughout the value chain and market power held by firms operating upstream in the supply of day-old chicks and feed,” it said. 

China’s impact

Globally, feed output volumes grew by 2.3% in 2021 to 1.236 billion tonnes, with China leading in the production list.

China’s feed production volumes increased by 8.9% in 2021 to 261.4 million tonnes coinciding with the country’s ongoing effort to restock its pig herds after the devastating African swine fever outbreak. 

Revival of China’s pig herds has triggered demand for corn and soybeans, “which directly and significantly affects global supply and demand,” according to AFMA.

Pig feed production in China grew by 6.6% to 17.25 million tonnes, a situation that could lead to higher-than-normal prices over the short to medium term, according to AFMA.

There are indications, however, that the situation may change during the 2022-23 marketing year as South Africa experienced above-average rains over most parts of the production area during the November and December 2022 season. This boosted crop plantings and provided conducive growing conditions, according to the US Department of Agriculture (USDA).

The USDA estimates South Africa’s corn production at 15.6 million tonnes for marketing year 2022-23, output that would enable the country to maintain its status as a net exporter of the commodity.

Total South Africa feed production peaked in 2020-21 when 11.9 million tonnes were produced, nearly a 0.2% increase from the previous year.

Liesl Breytenbach, interim executive director and technical and regulatory manager at the AFMA, said that “despite record South African grain and oilseed crops, commodity prices are at higher-than-normal levels due to global grains and oilseeds value chain demand pressure, driven by global supply and demand for commodities.”

In 2022, feed manufacturers affiliated to AFMA reported a 2.2% increase in feed sales to 6.9 million tonnes, after a 1% year-on-year growth in the previous year.

However, total South Africa feed production peaked in 2020-21 when 11.9 million tonnes were produced, nearly a 0.2% increase from the previous year.

“This growth was achieved despite a vigorous combination of simultaneous challenges impacting the poultry and livestock sectors,” said Breytenbach in reference to the devastating effect of poultry diseases reported since April 2021. 

It is estimated nearly 4 million birds have been culled because of the highly pathogenic avian influenza (HPAI) outbreak that began in April 2021, with the total losses representing 2.6% of South Africa’s national flock, 9.6% of the egg industry flock and 0.6% of the broiler flock. 

A recent report by the USDA said South Africa had by June 2022 reported a total of 85 outbreaks to the World Organization for Animal Health “although the cases are thought to have reached 145.”

“The year 2022 was one of the darkest years for South African egg producers,” said Dr. Abongile Balarane of the South Africa Poultry Association (SAPA) in reference to the outbreak and spread of the HPAI that saw more than 2.8 million birds culled. AFMA said layer and breeder feed production shrunk by 2.1% and 1.4%, respectively, because of the HPAI crisis.

South Africa also battled African swine fever and foot-and-mouth disease in 2021 and part of 2022 with an impact on animal feed uptake.

Pig feed dominates

The animal feed market is dominated by pig feed, which grew nearly 16.4% for the 2021-22 marketing year, according to AFMA. 

Beef cattle and sheep feed increased by 8% in the same period while the broiler segment grew by 2.4%. 

But in terms of volume, broilers “are showing the most significant gains with a recorded growth of 66,717 tonnes, followed by beef cattle and sheep on 66,504 tonnes and pigs on 63,785 tonnes.”

Elsewhere, South Africa’s animal feed raw materials is dominated by maize that takes up 45.57% of the total feedstock utilized by feed manufacturers. Soy oilcake, sunflower oilcake and fishmeal make up 14.6%, 4.06% and 0.29%, respectively, of the total raw material used in South Africa’s feed industry.

South Africa’s Western Cape region has the largest share of animal feed production at 21% ahead of Mpumalanga, Gauteng and KwaZulu Natal with 18%, 16% and 13%, respectively.

Other regions with feed production facilities in South Africa include Free State, Eastern Cape and Limpopo with a 13%, 8%, and 2% share, respectively.

Top feed manufacturers in South Africa include AFGRI, Bokomo Voere, Epol, KK Animal Nutrition, Meadow Feeds, Noordwes Voere, Brenco Feeds and Senwesko Voere.

Some of these feed manufacturers have in their latest reports highlighted key issues that are likely to hamper growth of South Africa’s feed industry such as weakening local currency and increasing energy costs.

Other food industry companies such as Astral PLC and Quantum also have feed manufacturing divisions that contribute toward South Africa’s total animal feed production.

Some of these feed manufacturers have in their latest reports highlighted key issues that are likely to hamper growth of South Africa’s feed industry such as weakening local currency and increasing energy costs.

“We are expecting raw material input costs to reduce and poultry efficiencies to return to normal from July onwards,” said Dries Ferreira, chief financial officer of Astral Foods.

However, Ferreira said the benefits that could be derived from lower global grain prices “are at risk due to the continuing weakening of the local currency, and further escalations in the diesel bill, which is included in the cost base for Stage 6 load shedding at approximately ZAR 45 million ($2.5 million) a month.”

Astral announced a 37.4% increase in revenues of its feed division for the six months ended March 31, 2023, to ZAR 6.4 billion ($349 million) up from ZAR 4.7 billion ($256 million) for the same period in 2022.

The increase, the company said, is “a direct result of higher selling prices on the back of significant increases in raw material costs.”

With the Ukraine/Russia conflict having far-reaching adverse effects on global grain trade, and consequences of climate change jolting production circles of key animal feed raw materials, especially corn in South Africa, the future of the country’s feed industry likely will depend on how these two challenges are tackled both at the global and national level.